What is a Living Trust?
A living trust is an arrangement that places someone in charge of a person's property. A person can be their own trustee and continue to have complete control of any property that's held in the trust. Or, a person can name someone else the trustee. When this happens, the trustee may also be called the beneficiary.
When is a Living Trust Established?
A living trust goes into effect while you are still alive, as opposed to a will that provides direction after your passing. A living trust is similar to a will in that it clarifies what you want to happen to your dependents, heirs and assets. It can go into effect while you're still alive if you become incapacitated some way. For example, if you can't handle your legal affairs or finances due to an injury or illness, your living trust will dictate what should happen with your property.
What Are the Advantages of a Living Trust?
There are several reasons why someone might choose to have a living trust.
- It can lower estate taxes or help manage a property for the long-term.
- It's ideal for people who have complex finances, a lot of assets, or own a business.
- Personal reasons such as having a large family.
- People who have property in several states may also want a living trust.
A big perk to having a living trust is that it will avoid probate. Probate are the court proceedings that are necessary to distribute your assets when you have a will. When you don't have to go through the probate process, your assets can be distributed a lot quicker. Instead of your heirs waiting months or years to receive your assets, they'll get them within just a few weeks. Your trustee will pay any debt you owe and then handle your assets that way you've specified in the living trust. Additionally, probate costs money because of the court fees. When you have a living trust, more money can be distributed to your beneficiaries because those fees don't have to be paid.
There are two types of living trusts: a revocable living trust and an irrevocable living trust. In a revocable living trust, assets are transferred into the trust. You'll have control of the assets and act as the trustee. At any point, though, the trust can be changed or rescinded. When you pass away, the trust's assets go straight to your named beneficiaries without having to go through probate. A revocable living trust will not minimize the amount of state taxes that have to be paid.
On the other hand, an irrevocable living trust lets you give away your assets while you're still alive. This type of trust cannot be revoked - it's completely permanent. Once you've given away your assets, you will no longer have any control of those assets. They won't be considered to be part of your estate, which means you will no longer need to pay taxes on them.
While you can create a living trust on your own, it's always best to have it handled professionally by an estate planning attorney. Just like you would utilize the skills of personal injury lawyer Washington DC trusts if your were involved in a legal action; an estate planning lawyer is crucial to tactfully plan for your future from a legal perspective. Only a professional will have the knowledge and judgment necessary to create a worthwhile living trust. Also, simply writing a living trust won't ensure that your assets will be distributed as you want them to be. Bond accounts, banks accounts and stocks have to be arranged so that your assets can go where you want them to go upon your death. It's also common for people to have an estate plan along with a living trust.
Thanks to our friends and contributors from Cohen & Cohen, P.C. for their insight into living trusts.