While talking about estate planning, many people think that it is meant only for the old and the wealthy people, however, irrespective of the age and the economic value of the assets an individual own estate planning must be done by everyone. Estate planning is not only about the dispensing of the assets after your demise but also about planning for yourself and your family while you are alive. Every individual requires different estate planning depending on the type and value of their estate. It may be a will or a trust, which you can decide by discussing with your attorney.
While most people think that estate planning means creating a will, however, it is much more than that. While a will need to pass through a probate which is a time and money consuming process, you can opt for a trust which is more much beneficial in the way that it avoids probate, maintains privacy and much more. Here we have explained what a trust is and how it works to help you understand it better.
What is a Living Trust?
Living trust is an entity created by a person called grantor during his/her lifetime to hold and manage his/her assets during his/her life and dispensing them after his/her demise. It is set up by signing an agreement and then entitling the assets in the name of the trust and thus the trust becomes the new owner of the assets. The property is managed by a person called trustee that could be the grantor him/herself or a person or bank designated the grantor or both (called co-trustee). The grantor also designates a successor trustee who will be responsible to follow the guidelines of the trust after the demise of the grantor. In case of co-trustee, he/she become the successor trustee of the trust.
Types of Living Trust-
There are two types of living trust: revocable and irrevocable, and are summarized as mentioned below:
Revocable trust: A living trust is said to be revocable as it allows you to make amendments and revoke it whenever you want to while you are alive. During your lifetime, you are considered as the owner of the property and have full control on it. After your demise, the successor trustee will take care of the asset’s dispensation. However, it doesn’t reduce tax and is not protected from the creditors as you were the owner of the assets during your life. In such case if you lose any lawsuit against the creditors then the trust is closed and money is handed over.
Irrevocable trust: A living trust is said to be irrevocable as once you have signed the agreement and the trust is formed, you are no longer the owner of the property and thus, can’t change anything in it. As the assets are no longer owned by you, so they will not be subjected to the estate tax. Also, the creditors can’t be pursued by the creditors for the payment of your debts except the case that a fraud is involved, hence, protected from creditors as well.
If you think that trusts are meant for wealthy individuals, then you are wrong as living trust can also be opted in the cases where you are concerned about your injury or health i.e. incapacity. In case of incapacity the successor trustee appointed in the trust will be responsible to manage the financial affairs for you.
Also, the trusts are rarely contested as compared to the last will. A trust also helps you to restrict giving all the wealth at once to your heirs and also helps you to fund for the minor until they become adult. However, it is to be noted that if you want an asset to be in the trust then you must ensure that its ownership has been transferred to the trust.
After your demise, the successor trustee will take over the responsibility and will first settle all the outstanding debts, pay pending bills, fill the tax return, etc. After this, he/she will dispense the assets to the designated beneficiaries by you by transferring the ownership of that asset in the name of the new owner according to your wishes. In case any of the beneficiary is still young, then the successor trustee need to follow the guidelines set by you in the trust document. It may be to transfer the property to the custodian appointed by you until the child becomes adult according to your state’s law or to transfer the property in a child’s sub-trust using for the benefit of the child until the child attains a certain age as designated by you.
Living trusts are structured to help your heirs by avoiding probate and inherit the monetary value you want them to receive without wasting much of time and money in getting the assets. It is advised to contact and discuss with an attorney to know if a trust is beneficial to you or not and what kind of estate planning will be beneficial for you.