A living trust is a very useful estate planning document and is a piece in the puzzle of a complete estate plan. In this article, we will go over 5 living trust frequently asked questions.
1. What is a Living Trust?
A living trust is a legal entity that you set up to hold your property. You create and fund it as the Grantor. The Trustee then manages the assets. This is typically you during your lifetime and is done by a successor once you pass or are incapacitated. You also name beneficiaries; these are the people who will receive your assets when you pass.
2. How Does a Living Trust Work?
First, you will need a legal professional to draft your documents according to your instructions. Then you will need to sign the documents in front of a notary and witnesses. Then for your assets to avoid probate you need to fund the trust. This means titling assets from your name into the name of the trust. This would include real estate as well as bank and investment accounts.
3. What Benefits Does a Trust Offer?
The main benefit of a trust is that it keeps your assets out of probate. This is because the trust owns your assets. It will avoid court interference and save your loved ones from the lengthy and expensive probate process. Second, your trust will help maintain your privacy. Probate causes your information to become public record. On the other hand, a trust keeps the details of your assets and who receives them is not accessible to the public. Third, it helps you if you become incapacitated. It will allow your successor trustee to assist you without the need to get guardianship through the courts. Lastly, a trust gives you extensive control over distributions. This may range from staggering payments to keeping assets in trust until beneficiaries reach a certain age.
4. What Limitations and Drawbacks Come with a Trust?
The initial cost and effort involved may deter some from setting up a trust. Trusts are more expensive to set up than wills and it does take time and effort to get all your assets into the trust. Second, a typical revocable trust is not going to provide you with tax advantages or provide your assets any protection from lawsuits or creditors. Lastly, trusts cannot set up guardianship for minors. You will need a separate document to do this.
5. What are the Differences Between Revocable and Irrevocable Trusts?
The main difference between a revocable and irrevocable trust is flexibility. A revocable trust can be changed or revoked at any time. Whereas an irrevocable trust cannot be easily amended or revoked once signed. Second, with a revocable trust you maintain full control of all assets in the trust. Whereas with an irrevocable trust you give up control of assets that you title into the trust. Lastly, a revocable trust is not going to provide you with tax benefits or creditor protection. On the other hand, an irrevocable trust can be utilized for both creditor protection and tax planning purposes.
Understanding Living Trust Frequently Asked Questions
Understanding living trust frequently asked questions can help you prepare yourself for a complete estate plan. The sooner you start planning the better off you will be. Do not leave your legacy in the hands of the courts and state law.
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