What you Need to Know About Living Trusts

You’ve probably heard about the advantages of a living trust when it comes to putting together an estate plan. 

Assets placed in a trust avoid probate, which is time-consuming and potentially costly. 

Furthermore, a living trust allows you to name a trustee to administer your assets after you die, which is vital if your heirs are little children or adults who cannot handle a substantial inheritance.

While living trusts are great as they simplify the distribution of inheritance, many people make costly mistakes that make the process too convoluted for your estate planning attorney and heirs. What are some of the common mistakes?

Putting the wrong things

There are several things that you shouldn’t put in the living trust. They include: 401(k) plan, IRAs and tax-deferred annuities

According to Kris Maksimovich, president of Global Wealth Advisors in Lewisville, Texas, if you move any of these funds to your trust, the IRS would interpret the transaction as a distribution, and you must pay income taxes on the full amount. You don’t want this, do you?

To avoid this, you should designate your trust as the beneficiary of your retirement assets. By naming your trust as a beneficiary, you can control how your assets are dispersed to your heirs and protect the cash from creditors.

Failing to include vital items

The same way people add the wrong things is the same way they fail to add vital items. To stay safe, add the right items to your trust. The things that you should add include:

Real estate, including your home

It could be your most valuable asset, and it’s a good one to put in trust. This will shorten the time it takes to transfer the home to your heirs.

If you own property in another state, such as a vacation house, transferring the ownership to a living trust allows you to avoid probate in more than one state. You’ll need to draft a new deed transferring property ownership to your trust.

Transferring your home to a trust will help your selling capacity. While this is the case, you should note that to refinance your mortgage or receive a home equity line of credit, your lender may ask you to transfer the property from the trust and back into your name.

Once the transaction is complete, you can return the property to the trust.

Financial accounts

These include stocks, bonds, and mutual funds. You should also include certificates of deposit, money market funds, and bank savings accounts that are rarely used to write checks. You can even include your safe deposit box in the trust.

Adding these accounts requires some paperwork, so work with a professional who knows what they are doing.

Personal items such as collectibles, jewelry, and art

You don’t normally need to retitle these assets, but you should make a list with instructions to include them in the trust.

You can use the trust to specify who should receive these assets, which comes in handy in avoiding family feuds once you are gone.

This type of guidance can also be provided in a will, but a will becomes a public record, which is undesirable if your pearls are valuable.

While the car you drive around town is unlikely to belong in a trust, you may add any collectible vehicles you possess, especially if you believe the vehicle’s value will hold or increase over time.

After transferring and retitling assets to your trust, you should review it regularly to ensure it’s current.

The best way to go about it is to do the review on an annual basis. In other circumstances, every three to five years may be sufficient, although you may need to review (and maybe alter) the trust following a big life change, such as the sale of your house, the birth of a child or grandchild, or a marriage or divorce.

Do you need a trust?

As much as trust is important for you and your loved ones, you should note that it’s not for everyone. It’s not everyone that should create one.

Before you go ahead and find a lawyer and draft one, you should ask yourself whether it’s wise to get one in your current situation.

As previously said, funding a living trust needs some legwork and consideration of expense. Legal fees can also be high, depending on where you live.

A living trust may be worth the cost if it eliminates the complexities of probate.

Because most states exempt a specific amount of assets from probate, you probably don’t need a living trust if your estate is small—less than $100,000, for example.

Furthermore, if the majority of your assets are in retirement funds, you may not require a living trust because those assets will pass to beneficiaries outside of probate.

Life insurance with a named beneficiary will also avoid probate because the recipient will pay the death benefit.

You can make bank and other accounts receivable upon death to your heirs, in which case the accounts will avoid probate. Property owned jointly, such as a home you and your spouse own, will also pass to the surviving owner outside of probate.

Before you spend money on wills and trust attorney PG County, find out if your property is large enough for a trust. If not, save the money.

Parting shot

These are some of the things you should know about a trust. Many people shy from setting up a trust because they think it’s complicated, but it’s not.

Others avoid it as they have a will. You should note that while a will is an important aspect of estate planning, it is not a one-size-fits-all answer.

A will must go through probate, which may be an expensive and public process. A living trust, on the other hand, allows for a more private and efficient asset distribution.

If your property is large enough, there is no harm in having both a living trust and a final will and testament, offering you the best of both worlds.

Understanding Living Trusts

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.