A living trust is a trust that you establish and fund while you are still alive.
The basic goals of a living trust are:
- To manage and distribute assets and trust property to named beneficiaries without the probate court’s involvement.
- To ensure that assets are transferred smoothly to named beneficiaries in the case of the grantor’s incapacity.
- Assets are used to provide financial stability to family members.
You can establish a living trust as long as you are mentally and financially competent. There is no minimum age for establishing a living trust, though it is more customary for older people to establish one.
To establish a living trust, you must have assets to transfer into the trust and a clear knowledge of your trust’s aims.
When considering a living trust, it is critical to speak with a wills and trust attorney or a financial advisor, as they can help you assess whether a living trust is right for your case and provide information on the legal and financial concerns involved in establishing one.
Why should you have a living trust?
People establish living trusts for a variety of reasons. Some of the reasons you should consider getting the trust include:
To avoid probate
Probate is the legal process that follows the death of a person in which the court oversees the distribution of the deceased person’s assets.
When you have a trust, the assets flow immediately to the beneficiaries listed in the trust document without the requirement for probate court.
This not only saves you time, but also money.
To help with asset management
A living trust allows you, the grantor, to retain control over your assets administration and distribution during your lifetime.
You can serve as the initial trustee, deciding how the funds will be invested and managed. In the case of revocable living trusts, you can change the trust’s provisions at any moment.
However, in the case of irrevocable living trusts, you must obtain the beneficiaries’ agreement to change the trust provisions.
To ensure privacy
Individuals with large assets or those who prefer to keep their financial matters secret can use trusts and outlets to keep their information confidential rather than on the public record because it provides more privacy than a will.
To avoid contest
A well-drafted living trust specifying your preferences for asset distribution can help avoid contests over your assets.
This can help lessen the risk of disagreements among specified beneficiaries while ensuring that your desires are followed even in your absence.
Helps in planning for estate taxes
You can use a living trust for estate tax planning because you can establish certain trusts to reduce federal estate tax liabilities.
This can help you protect your assets’ value while reducing the overall burden of estate taxes.
Helps with the transfer of assets in the event of incapacity
If you are incapacitated, you can appoint a trustee to help manage the trust and make decisions about the assets on your behalf.
This can guarantee that assets are transferred smoothly to the chosen beneficiaries and prevent needing a court-appointed guardian or conservator.
How to establish a living trust
As mentioned, putting together a living trust can help ensure your assets are managed and dispersed in accordance with your preferences. The following are the stages required in establishing a living trust:
Decide on the type of trust you want
The first stage in forming a living trust is deciding on the type of trust you will establish.
As mentioned above, you can amend a revocable trust or revoke it at any time, whereas an irrevocable trust cannot be changed or canceled without the approval of the beneficiaries.
Before making a decision, weighing the advantages and disadvantages of each type of trust is critical.
Create a trust document.
The next stage is to draft a trust document once you’ve decided on the type of trust you wish to establish. This document defines the trust’s terms, which include:
- The trustee selection.
- Beneficiaries.
- Any limits or restrictions on how the trust’s assets may be used.
Have the trust document notarized or signed by an attorney
For a trust document to be legally binding, you should have it notarized or signed by a lawyer. This guarantees that the document satisfies all legal standards and is legally enforceable.
Set up a trust bank account.
Setting up a separate bank account for the trust is recommended to make managing the trust’s assets easier.
This also ensures that the trust assets are not mixed with personal or corporate assets.
Transfer all the assets into the trust.
The final stage in establishing a living trust is transferring ownership of all the trust’s assets to the trust.
Real estate, bank accounts, stocks, and any other assets you wish to put in the trust are all acceptable.
Transferring ownership of these assets ensures that the trust is managed and distributed in accordance with the requirements of the trust document.
To ensure the trust is properly established and managed, speaking with an expert estate planning attorney is critical.
Difference between a will and trust
Many confuse trusts with wills, but the two are different.
A will describes how an individual’s possessions will be allocated after death and can be used to designate a guardian for young children. A will is only effective after the person’s death.
On the other hand, a trust is a legal structure in which a trustee keeps and administers assets for the benefit of the trust’s beneficiaries.
A living trust transfers ownership of assets to the trust while the grantor is still alive, and the trust conditions govern how the assets are divided after the grantor’s death.
Parting shot
This is everything you need to know about a trust. As you have seen, many advantages come with having one. There are also many types of trusts that you can get.
Regardless of the reasons and types of trusts that you get, ensure that you work with an experienced probate attorney PG County to help you put together a solid document.