A trust is a legal way to set aside your hard earned assets for a specific and desired purpose. A living trust is a type of trust that can be initiated while you are still alive, offering flexibility and control over your estates in the event of incapacitation or death.
How a living trust is different from a will.
You might be asking yourself, “is there really a difference between a living trust and a will?”
Living trusts are set up before you pass on and can be used in case you are incapacitated. A will only goes into effect upon death. Utilizing a living trust can help you avoid probate court and your assets will be granted to your beneficiary immediately.
One reason for consulting with an attorney regarding a living trust is to remove the unnecessary and painful legal proceedings following a loved one’s death. With a will, you can’t avoid probate court and the assets become public record. With a living trust, you exclude probate court and all your assets remain private to your beneficiary.
What exactly is a living trust?
A living trust is a legal estate planning tool that breaks down how your assets are to be used or distributed in any event of incapacitation or death. A living trust specifies legal relationship between three basic groups.
- The grantor, who funds the trust
- The trustee, who manages the trust
- The beneficiary, who receives the proceeds & assets
Living trusts are powerful legal documents regarding your estate and how you would like it dispersed among your beneficiaries upon death or incapacitation. Living trusts protect assets such as real estate investments, bank accounts, investments and property.
Upon your passing, your wishes will be carried out and passed to the beneficiaries all while avoiding the negative aspects of probate court.
Living trusts are important, and below are important reasons to have a living trust.
- Avoid Probate
- Privacy Protection
- Save Money & Protect Property
- Greater Control of Assets
A living trust gives you control of your hard earned assets while you’re still alive, but you pass on the control to a trustee to pay the beneficiary under specified conditions. These conditions allow for greater control over your assets even when you’re gone.
So, why is it a good idea to arrange how your assets will be handled upon death? It helps take away decisions for your beneficiary or spouse during a tough and emotional time. With a living trust, you can place many different assets into a bank account, allowing loved ones to be cared for immediately.
Probate is the court-led process that usually handles an estate after death. In general, the probate process involves a court examining the provisions of a will and the assets included (or excluded) within.
There is usually a waiting period from one to three months in which the beneficiaries could have limited or no access to any of the funds in the estate while in probate. A living trust is an effective method of avoiding probate court. One of the main reasons it is best to avoid probate is because of the fees and other costs which can be calculated as a percentage of the total estate. Avoiding probate means that money won’t be deducted from your estate, and your beneficiaries will receive everything you intended for them to inherit.
A will and all assets not covered by a will are subject to probate and thus become open record. The probate process is public record, which means anyone can look up what assets were in the estate and what beneficiaries received what assets. Setting up a living trust is a method of avoiding probate and can also be used to protect the privacy of your estate and thus your beneficiaries.
Another key benefit of living trusts is that they can be enacted when the grantor is incapacitated. The trustee will take control of your assets during this unfortunate situation and then manage your estate according to your predefined stipulations, including ensuring the trust is run for your benefit as the trustor. This is different from a power of attorney or health care power of attorney in that it details how your assets are to be managed while you are incapacitated, as well as what to do in the case of your death. Living trusts can also be set up for married couples that will set aside funds or assets to provide for the surviving spouse.
Trusts offer greater flexibility in determining how assets are to be distributed in various situations. A living trust can also detail how assets are to be managed in case you are incapacitated. There are a variety of trusts, such as living trusts, which can be revocable or irrevocable. A revocable living trust can be changed while an irrevocable one may not. It may be a good idea to consult an estate-planning attorney for complex situations to ensure your assets are managed in the best possible way. Living trusts will provide greater flexibility to manage your assets in the way you want, including how they are passed on to heirs.
Save Money & Protect Property
Estate taxes and protecting assets from lawsuits or creditors is a concern when estate planning.
Certain trusts may even be arranged to be managed overseas to avoid jurisdiction of some courts. Also, trusts can provide benefits in cases of joint tenancy. Since a trust allows for the assets to be split up as desired, it can be parceled out in amounts or in ways that limit the impact of costs while maximizing associated tax benefits. It is important to consult a legal professional before funding any trust to ensure your assets are managed legally.
Greater Control of Assets
A living trust allows you to decide how your estate will be managed in various situations. This can give much greater control over how real estate and other property will reach beneficiaries compared to a will or other legal documents. A trust can be arranged to payout assets immediately, over time, or when the beneficiaries reach certain conditions. This is especially useful when setting up a trust for children who are not old enough to manage their money.
A living trust can also be used to set aside money for a person who might not be mature enough to handle a large sum at that time, such as grown-up children with mental issues or drug problems. Trusts can also be set up to manage assets for situations where relationships may be complex. Finally, some living trusts can set aside assets in a way that is not counted for end-of-life care and Medicare proceedings.