What Is A Living Trust
A living trust, also known as a revocable living trust or a revocable trust, is a legal document that establishes a trust for any assets you wish to transfer to it. The main purpose of a living trust is to take care of the transfer of your assets after your death.
Under a living trust, you are the settlor of the trust, and the person you choose to distribute the trust’s assets after your death is called the executor or successor trustee.
How Does a Living Trust work?
Your living trust holds the ownership rights or title to the property you transfer to it. When you die, your successor trustee will distribute these assets according to the terms of your trust.
Because a living trust is revocable, you as the settlor retain the assets of the trust even after you transfer ownership or title to the property in the trust.
The revocable nature of a living trust means that you can manage the assets of the trust as much as you can before transferring the assets to the trust. For example, you can:
Mortgage or refinance assets.
Withdraw assets from the trust.
Sell or give away all or part of the trust’s assets.
You can also end the trust completely at any time. And because you have full control over the terms of the trust, you can change the trust’s beneficiaries at any time and who you name as your executor.
The Benefits of Using a Living Trust
There are many benefits to using a living trust. They include:
Avoids probate. This is often the main reason people use living trusts as part of their estate planning. Assets held by a living trust after your death can be easily distributed by your executor. Since these assets are held in your trust rather than your estate, they won’t go through the probate process. Probate is a court-supervised process that can be complicated and time-consuming, and during that time the probate assets will be unavailable to any of your beneficiaries.
Provides for your loss of capacity. Your successor trustee will be able to step in to manage the assets of the living trust in the event of your incapacity to manage the assets yourself. So, for example, if an accident causes you to lose control of the estate’s assets, the terms of your living trust allow your executor to take over, without asking the court for permission to do so.
Manages the distribution of your assets. Like a will, your living trust determines what happens to your assets after you die. There is no limit on distributing the property directly to your beneficiaries. For example, if one of your beneficiaries is a minor, you can create a trust in your living trust for the beneficiary until they reach the age of majority or an age where you believe they will be old enough to handle their inheritance.
Keeps your affairs private. The probate process is a matter of public record. By keeping your assets in a living trust, you protect your family’s privacy after your death. This means that people cannot search public records to see what assets you have at the time of death and how they are distributed among your beneficiaries.
The Disadvantages of Using a Living Trust
There are also some disadvantages to using a living trust. They include:
Transfer of title. While setting up the trust itself isn’t complicated, any assets you want to hold will be properly transferred to the trust. Assets that do not require the transfer of ownership, for example, furniture or jewelry, can often be transferred using a document that assigns ownership rights. But for assets you own, such as real estate, a legal change of ownership must be made to the title document itself.
Costs. The title transfer process requires additional documents and payment of a filing fee to register the change with the proper authorities. But if you are doing multiple name changes or complex assets, it may be a good idea to contact an experienced estate planning attorney to transfer the title for you. These fees are additional costs that are separate from the cost of creating the living trust itself.
No real tax benefits. Even if the living trust contains assets you transfer to it, you will continue to be taxed personally on the income from those assets. And while there may be some estate tax benefits from a living trust, depending on how it’s drafted, those benefits are available through a will.
Will vs. Living Trust
Here is the difference between a will and a living trust:
Wills are only valid after your death, so they cannot be used to manage your assets before you die.
Wills must go through a probate process before the distribution of assets covered by the will can be made.
Because the will must go through probate, the will itself becomes public.
Your will is the right place to choose a guardian for any child.
It is recommended that you always have a pour-over will to complement your living trust. A pour-over is available to transfer assets that are not part of your trust to your trust upon your death.
A living trust can be the perfect tool for your estate planning. However, there are several pros and cons to using a living trust that make it important to carefully consider whether a living trust is the right estate planning tool for your needs.
How White Sands Trut & Estates Can Help with a Living Trust
Living trusts can be used to transfer property and assets to beneficiaries without going through the probate process. It can save years and thousands of bills. In addition, it keeps your estate private, whereas the last will, once probated, will become a public record.
People often use last wills and living trusts together. Last wills and living trusts can be used to appoint guardians for children and express last wishes that are not part of a living trust.
Ensure your loved ones and property are protected, starting your estate plan today. Contact us to schedule a free session.
