Posted in Triplett & Carothers on September 3, 2021
A living trust, set up during your lifetime, is designed to allow for easy transfer of your assets. A trustee holds legal possession of the assets and property in your trust and has fiduciary duty to manage the trust prudently for the trust’s beneficiaries.
Most significantly, it lets you skip probate.
Unlike a will, a living trust is in effect while you’re alive. The trust doesn’t have to clear the courts to reach its intended beneficiaries at time of death or incapacity.
Living trusts can be irrevocable or revocable. With a living revocable trust, you can designate yourself to be the trustee and take control of assets in the trust. Revocable trusts are subject to estate taxes, but the federal estate tax applies only to the extremely wealthy.
You have the power to amend trust rules at any time. You’re free to change beneficiaries or undo the trust altogether. But you relinquish control over the trust when it is created. The trustee is the legal owner. Also, the trust doesn’t protect your assets if you need to apply for Medicaid benefits for long-term care.
An irrevocable trust is active and cannot be changed — even by you. Once the trust agreement for an irrevocable living trust is made and the beneficiaries are set, you can do little to amend the agreement. A revocable trust automatically converts to an irrevocable trust on your death.
A living trust itself can be named the beneficiary of such assets as employer-sponsored retirement accounts — 401(k) plans, IRAs, life insurance policies, and certain bank accounts such as Payable on Death accounts.
In fact, almost anything can be placed in a living trust if it has value of any kind, including:
- Real estate.
- Bank and savings accounts.
- Fine art and jewelry.
- Virtual items like mining rights and intellectual property.
The process of transferring assets from your name to the trust is called funding the trust, and the items together form a trust fund. You can leave a full inheritance to your heirs and have the power to impose certain conditions that need to be met before these beneficiaries receive items from the inheritance.
Here are some benefits of a living trust:
- Saves time and money in the probate process. Your trustee can take care of your end-of-life affairs, like paying for funeral costs and distributing property to heirs, without having to wait for the probate judge.
- Offers more protection if challenged. A living trust is less likely to be challenged in court than a simple will is. Challengers would have to prove you were coerced into signing the documents and forced through the process of funding the trust.
- Protects privacy better. A will is a public document, which means that anyone can get a copy of it from county records after your death. A living trust is private, so no one is permitted to know the details unless the trustee blabs it about.
Here are some disadvantages:
- Your property isn’t yours anymore; it’s the property of the trust. If you’re the trustee, you will have to take property out of the trust if you want to sell it. If you aren’t, you need the trustee’s consent to manage your own property.
- You will need to pay attorney fees. Setting up a trust with an attorney is by far the best way, because attorneys are qualified to provide guidance. However, that guidance comes with fees and so will any changes to the trust.
- The retitle and re-deed processes can be onerous. You’ll need to change legal ownership on all the property you want to place in the trust, including personal and real property and financial accounts.
- A living trust can’t appoint a guardian for your children. Only a will can do that.
- A living trust takes more time to set up. There’s more paperwork involved in setting up a living trust than there is in setting up a will.
A living trust can often get inheritances to your beneficiaries more quickly and with fewer complications. And should you lose mental capacity, your trustee can step in and manage the assets in the trust for you. The authority you grant to your trustee is more readily accepted by outsiders than a standard power of attorney is.
This is just a quick introduction to a complex topic. Work with legal and financial professionals to decide whether a trust is right for you, and if so, what kind.