What is a living trust?

Without a properly drafted and implemented estate plan, your assets will likely be subject to the probate process upon your passing, remaining tied up in court and costing your heirs a percentage of their inheritance. However, there are numerous estate planning tools that can help make this process run more smoothly and possibly avoid it entirely. You should speak with your personal estate planning attorney and financial advisors to discuss your estate plan and how to avoid the probate process.

A living trust is one way that you can help your heirs avoid the probate process when you die, allowing you to take control over the eventual distribution of your possessions after your death. With the help of your attorney, you can create a revocable living trust during your lifetime, and you can revoke or amend your trust while you are alive. While living, you can contribute additional assets to the trust and can change who will receive trust distributions at any time.

Depending on the type of living trust you choose, you may be able to transfer most types of assets – such as your home, jewelry, bank accounts, stocks, bonds and investment properties – into a living trust. Even though the living trust would technically own the property, you can still maintain full control. In fact, in some cases, you can use the trust property in the same way you had before you transferred it to your trust.

Save your beneficiaries money by avoiding probate

One of the primary benefits of using a living trust is to avoid probate. Probate is the court-supervised process of administering your assets after your passing, which can be time consuming and expensive – costing up to 7% of the value of the estate in some states. Probate records are generally public, which means that anyone can see what is in your estate and how those assets are distributed to your beneficiaries. Generally, any asset owned by your trust at your passing or any asset with your trust listed as a beneficiary will not be subject to the probate process.

Property administration in case of incapacity

The other primary benefit of a living trust is the possibility of ongoing management of your assets if you become incapable of managing them. Without a living trust, you’d need to give someone power of attorney to act on your behalf – and using a power of attorney can sometimes be difficult. If you have a living trust and have named a successor trustee (someone to be the trustee after you), the successor can step in with minimal hassle and continue to manage the assets that you’ve moved into the trust.

Other considerations for living trusts

There are costs associated with setting up a living trust, including hiring an estate planning attorney to draft the legal documents. Additionally, you will need to properly transfer assets to the trust and set up proper beneficiary designations. Some assets, such as real property, require a legal change of the ownership, which can add additional costs.

There are typically no income tax benefits associated with a living trust. Even though you transferred property to the trust, you will still be subject to income taxes generated by the trust property. There may, however, be some estate tax benefits of a living trust, depending on how it is drafted. You should speak with your estate planning attorney or tax professional about the tax implications of transferring assets to your revocable trust during your lifetime and after your passing.

A living trust is only part of an estate plan. You should still have a last will and testament, which in most cases would “pour over” any remaining assets that you own into the trust when you pass away, as well as financial and health care powers of attorney, a living will and other documents. Your estate planning attorney will be able to advise on what documents should be created for your estate plan.

The bottom line

Living trusts are among the most flexible and popular of estate planning vehicles available in the United States. You can often change them whenever you want depending on the type of living trust you choose. With proper asset titling and administration, they can preserve your privacy by allowing your estate to avoid the probate process, allow your assets and accounts to be administered without court involvement if you can’t take care of them and enable you to control how your assets will be distributed after your death.

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