Living Trust Basics
A living trust is an important estate planning document. There are many different types of trusts, each created for special financial situations. Whether your estate is small or large, there is a living trust that will work for your needs. In this article, we will go over the basics of how a living trust works and why you should use one.
What is a Living Trust?
Put simply, a living trust is a legal entity that holds your assets for the benefit of another person. The main reason people set up a trust is to avoid probate. For a trust to work properly, you must retitle your assets into the name of your trust. This means changing how the title to your bank accounts and home are held. Generally, you will still have complete control over all your trust assets. After you pass away, the property that you put into the trust will pass onto your named beneficiaries. These distributions are done according to the instructions you leave behind.
While there are many different types of trusts, but there are two main types you should be aware of. These are revocable and irrevocable trusts. Revocable living trusts are the most common. This type of trust is amendable, so you can make changes during your lifetime. You can change your successor trustee, your beneficiaries, or any other provisions of your trust. Additionally, you can move property in and out of the trust very easily.
The second type of trust is an irrevocable trust. It is much less common and more complex than a revocable trust. When you set up this type of trust, you lose direct control over your property and you cannot be a trustee. Additionally, you must distance yourself from the proceedings for the trust to achieve its purpose.
Why Create a Living Trust?
First, a living trust avoids probate. Any property you put in your trust avoids the probate process. It is a common misconception that a last will and testament accomplishes this as well, but that is untrue. If you have a will it will guide your estate through the probate process, not circumvent it.
Second, a trust can protect your children. If you have minor children, it will give you the power to appoint a guardian to provide monetary support as they grow up. You will have a large amount of flexibility as to how you want your children to receive their inheritance. Additionally, you can structure their inheritance to be given all at once, or in small installments. You also can protect the funds you leave them from bankruptcy, divorce, and creditors.
Third, you can set up your trust in a way that will lighten any potential tax burden for your children. This can be complex, so if taxes are a concern for you, be sure to consult with a tax expert.
How to Start
Once you decide you are ready to create a trust, there are several factors you will need to take into consideration. These include who you want to be your successor trustees, who you want to give your assets to, and how to want to distribute your assets. Once you have a general plan in mind, an attorney or certified legal document preparer can help you to get your estate planning affairs in order.
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The information presented is not specific to any one person’s circumstances.
This information is in no way shape or form as legal advice, it is for informational and educational purposes only.