Living Trusts Offer Many Benefits
Anyone who thinks about planning his or her estate will hear about “wills,”
“probate” and “living trusts.” A will is a document that states where you want
your property to go when you die. Probate is the court procedure that makes sure
your will is valid and puts it into effect. But what is a “living trust” and
what estate planning benefits does it provide?
Trust are legal devices that let one person manage property for the benefit of
someone else. With a trust, a person can stop being the “owner” of property
but still keep control over it. A trust is created when someone (called a
“trustor” or "grantor") places property in a trust. A "trustee" holds and manages
the property for the benefit of someone else, who may later receive the property
or the income or benefits it generates. The person who receives these benefits
is called the “beneficiary.”
A living trust is a special kind of trust which can be an extremely
valuable estate planning tool. With a living trust, you can transfer property from yourself (as the
full owner) to the name of the living trust (for example, Mary Jones Trust).
You can name yourself as “trustee,” or you can appoint someone else to serve
in this capacity.
You can set up the trust so that you receive the benefits of ownership while you
are alive. When you die, a “successor” trustee (someone you selected)
takes control of the assets in the trust and distributes them in accordance with
your instructions in the trust document. This takes place without the
involvement of the probate court.
Living trusts can be "revocable" or "irrevocable," depending on whether
you keep the power to change or revoke it. The
classification is important because only an irrevocable trust saves taxes.
Property in a revocable trust is treated for tax purposes as still belonging to
the you. A trust can also be set up in your will. This is called a
testamentary trust (as opposed to a living trust, which is set up while you are
alive).
Key Ways A Living Trust Can Help You
Living trusts are extremely helpful estate planning tools, as they can help
you in many ways. They include:
• Avoid delays and expenses of probate. With a living trust, property
can often be transferred after death much faster than by will, since property
left by a will must go through the probate process. Also, the steps taken under
a living trust can be less expensive than administering a will.
So a living trust can avoid the delays of probate (the process can take months
or even years -- how long is out of your control) as well as help you leave more
to your heirs.
• If you become incapacitated, a living trust can help you avoid a guardianship
(called “conservatorship” in some states). A guardianship happens when a person
is declared legally incompetent and a court appoints someone (a “guardian”) to
manage that person’s money and make other decisions for him or her. By having a
living trust, you eliminate the need for guardianship proceedings if you become
incapacitated, since you’ve already appointed someone to manage your money in
this situation.
• Living trusts are harder to challenge than wills. In a probate, your heirs
receive notices asking if they want to challenge each action being taken. Living
trusts do not involve court filings or notices. Also, more goes into
creating a living trust, so it is harder for someone to claim you did not have
the mental competency to prepare it or that you prepared it because of someone's
threats or pressure. • Your living trust can provide financial support for others, like children or
grandchildren, without giving them control of property.
• Privacy. Living trusts offer a lot more privacy than wills because wills must
be proved and administered through courts, and court records are open to the
public. The contents of a living trust don’t have to be made public, so they are
easier to keep confidential.
• Lower estate taxes. Depending on the value of your estate, a living
trust can be used to help lower the estate taxes due on your death.
• A living trust can help you with issues regarding young children. If you die
while your children are minors, a court will appoint a guardian to manage money they inherit until they reach
adulthood. The guardian must get court approval for many decisions. But a trust
lets you name who you want to manage the money, how to spend and save it, and when
to turn it over to the children.
• While you’re alive, you can be the trustee to manage the property you put in
trust.
Creating A Trust
A living trust is created by a written trust document. The document will name a
person or entity to serve as the trustee (normally you), a successor trustee to take
over when the first trustee dies or becomes incapacitated, and it will also name
the beneficiaries. In addition, the trust document will tell how to manage and
distribute the property in the trust.
Along with creating a trust document, property that will be put in the trust
must be transferred to it. You can place almost any type of property in it,
including money, real estate and stocks.
There are many reasons to have a living trust, and people who are planning their
estate should look into whether they would benefit by having a living trust. Our law firm
can analyze your family and financial situation and advise you if a living trust
is right for you as well as help you prepare a living trust that is tailored
specifically to your needs.
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