All About The Legal Torts

What Is A Living Trust, & Why Do I Need One?

Dec 2

A living trust is an excellent approach to protect and distribute your estate assets privately and without the involvement of the courts.

A living trust is a useful tool for managing one's inheritance, especially when it comes to determining how (and to whom) one's assets should be distributed after death.

A living trust is used to give people more control over their assets and to ensure that their desires are carried out after they pass away. Probate can take up to three years and cost up to 10% to 15% of an individual's estate's worth, thus a living trust can assist save money and time. Setting up a trust can also provide you with greater privacy than a will because you don't have to register it with the courts.

After all, estate planning has nothing to do with death. It's all about having control over your assets, both while you're alive and after you die. A living trust is one of the most fundamental ways to gain control. A trust allows for more freedom - and creativity - when it comes to transferring funds to heirs than a will alone.

The control of a trust is its power. A parent could, for example, leave money to a child with a third party, such as a financial institution, to be handed to the child at any age the parent chooses - or even in annual increments. Other instances include establishing trusts to keep assets out of the hands of "in-laws" and other creditors such as bankruptcy and lawsuits, among others.

When you're healthy and able to make sensible financial decisions, the best time to arrange for your estate is now. These are the choices that will:

  • Make sure your estate/asset instructions are followed when you pass away.
  • Assist you in providing for your dependents and allocating your assets efficiently.
  • Resolve any disagreements about how your assets will be distributed once you're gone.

 

Living Trusts Come In A Variety Of Shapes & Sizes

Living trusts come in a variety of shapes and sizes, all of which may be readily set up with the guidance of an experienced estate planning attorney. Consider the following sorts of trusts:

  • Trust that is revocable. A revocable trust allows someone to keep control of their assets while they are still alive. The assets of a revocable trust can be moved around, and the trust's structure is fairly flexible. It can be changed at any time, and it can also be revoked. A revocable trust is a fantastic place to start if you're seeking for an estate planning vehicle that gives you privacy and control over your assets.
  • Irrevocable trust is a type of trust that cannot be revoked. The difference between irrevocable and revocable trusts is that irrevocable trusts cannot be altered or revoked. Creditors are unable to access assets held in an irrevocable trust. A doctor or surgeon who is at risk of malpractice and could be sued in court is an excellent candidate for an irrevocable trust. In that case, an irrevocable trust provides a safe haven from such litigation while also providing excellent asset protection.
  • Trust for asset protection. This sort of trust aims to protect the assets of the trust holder from creditors attempting to seize the assets of an individual in the future. Asset protection trusts can be set up for a predetermined period of time, after which all assets in the trust that have not been dispersed are returned to the trust holder.
  • Trust for charitable purposes. Charitable trusts are exactly what they sound like: they're trusts set up to benefit a specific organization or cause. Such trusts not only help an individual's chosen organizations and causes, but they also help the trust holder save money on taxes by cutting or avoiding inheritance and gift taxes.

 

The Advantages Of A Living Trust

Properly drafting and transferring your assets to a revocable living trust allows you to keep control of your assets, avoid the court probate process, and better deal with a variety of other issues such as unusual death sequences and incapacity issues that cannot be addressed with a simple bank or investment account.

The benefits of a living trust don't end there. These advantages are also worth considering.

 

What Is A Living Trust & How Do I Create One?

Although establishing a living trust is very simple, it is essential to enlist the assistance of an experienced estate planning attorney. Follow these guidelines when doing so:

 

Step 1: Determine which type of trust is most appropriate for you

Choosing a living trust is influenced by a number of things. Do you have a spouse or are you single? Do you have any kids? Do you own a company? I'm curious about the size of your estate. To choose the trust you require, engage an estate planning attorney or a financial consultant.

 

Step 2: Determine what will be included in your trust

The next step is to decide which assets will be included in your trust. Living trusts are typically used to hold major assets such as an investment portfolio, a business, or a home.

 

Step 3: Determine who will inherit your trust's assets

A trust usually benefits a spouse, family member, friend, business partner, or charity, but this isn't always the case. Consider who important to you and who will inherit the assets of your trust.

 

Step 4: Appoint a trusteeship

After you die, you'll want a trusted partner to manage your living trust. It might be your husband, son, daughter, lawyer, or anybody else you want. Because running a trust is a major job, make sure you talk about it with any potential trustee ahead of time.

 

Step 5: Finish your trust agreement

The process of completing a living trust form is quite straightforward. You'll answer questions about your background and financial holdings before signing your trust agreement (your spouse will need to sign, too, if the trust is shared.) You'll almost always need to sign your living trust in front of a notary public. Before you sign off on your trust, get it reviewed by an estate planning professional.

For convenient access, keep your trust in a secure location, such as a house safe or a bank deposit box. Let your trustee know where your trust document is kept and provide them instructions on how to get to it.

 

Will vs. Living Trust

Creating a legal document that specifies who will inherit your assets when you pass away is a good idea, but there are several approaches you can take. In this regard, understanding the benefits of a living trust vs a standard will might assist you in making the best decision.

Here's how they compare:

  • Timing. The most significant distinction between a living will and a trust is the timing. When you die, the directions in your will take effect. Instructions in a living trust take effect immediately after you sign and notarize the document.
  • Probate. A typical will, in general, requires probate before assets may be dispersed. In contrast, unless creditors become an issue, a living trust avoids probate.
    The public against the private sphere. When a will is presented to the probate court, the details of the document become public. Only the beneficiaries of a living trust can know what's in the trust; otherwise, a living trust is kept hidden from prying eyes.
  • Costs. Because wills must go through probate, the costs of coming to court can quickly build up. A living trust avoids these expenditures and taxes by avoiding probate.

When it comes to distributing estate assets, a living trust can be highly useful. Just keep in mind that working with a good estate planning attorney or financial adviser can help you get the most out of the process.