The Revocable Living Trust (Living Trust) is the most common trust-based estate planning tool. Compared to other planning options, it provides more flexibility and control for you. But that’s not all. There are other reasons why a Living Trust may be appropriate. We’ll explore some of those reasons in this article.
Misconceptions About Living Trusts.
Before we get too far in this article, I want to address some misconceptions about Living Trusts. Whether a Living Trust is right for you has little to do with your wealth, the size of your estate, or the type of assets you own. Anyone who says that you don’t need a Living Trust unless you are wealthy doesn’t know what they’re talking about. And they probably aren’t a dedicated Estate Planning/Elder Law attorney. We must be careful about where we get our legal advice, the same as we must be careful about where we get our health care advice. The truth about Living Trusts is very simple: whether a Living Trust is right for you is based on your goals and whether the Living Trust is the best way to achieve them. So a thorough evaluation of your goals and the ways to achieve them must occur before anyone can say whether a Living Trust is right for you.
What Is A Living Trust?
A Living Trust is a trust that is created during your lifetime outside of your Will. A trust created in your Will is called a Testamentary Trust. A Testamentary Trust doesn’t come into existence until after your death and your Will is probated in Court. A Living Trust comes into existence the moment you sign it and transfer an asset into it. The Living Trust can hold just about any asset you might want to transfer to it including bank accounts, investment accounts, personal property, and real estate. The Trustee of the Living Trust will hold and manage those assets according to the instructions contained in the Living Trust agreement. And the Trustee will distribute those assets according to the instructions, too. For example, the Living Trust might say that some of the assets in the Living Trust should be distributed to certain beneficiaries shortly after your death. The Trustee will follow those instructions and make the distribution. In this way, the Living Trust functions like a Will in that it directs distributions of your assets to beneficiaries. But unlike a Will, the Living Trust comes without the extra time and expense of court involvement and estate administration. Another advantage to the Living Trust explained in more detail below is the ability to distribute the assets over time rather than all at once.
Does A Living Trust Avoid Probate (Estate Administration)?
Probate, or estate administration, is the court-based process by which a person’s assets are collected, managed, then distributed after death by the Estate’s Executor or Administrator to the person’s beneficiaries or heirs. Probate can be time consuming, costly, and open to the public. If you want privacy, convenience, and lower costs, probate is not where you’ll find it. A Living Trust can avoid probate for you. To achieve this, you place your assets in the Living Trust so that they are in the trust that you control at your death rather than in your sole name which would require court involvement as part of your estate.
When Is A Living Trust Helpful?
People find Living Trusts helpful in many instances, but some instances are more common than others. For example, if the person you would want to be your estate’s executor has a busy life, isn’t local, or might find being in court stressful, the Living Trust is a simple way to allow them to handle your assets without the stress and extra time commitments of court involvement.
A Living Trust is also helpful when you want to benefit people over time rather than give your assets to them all at once. Many people want their assets to flow to the beneficiaries at intervals. With the Living Trust, you can structure the distribution so that the assets are distributed at whatever intervals you think will be best for your beneficiary. Also, a Living Trust is helpful when you want to protect your assets.
How Does a Living Trust Protect Assets?
Assets we pass all at once to our children or other beneficiaries through inheritance are immediately available to them to use in whatever fashion they desire. Perhaps, that is what you want. But problems can arise from such distributions. For example, if the beneficiary divorces after receiving the inheritance, the assets you passed to them could be lost to the divorcing spouse. Also, if your beneficiary dies after receiving all of the assets, the surviving spouse is likely to receive all of the assets and make them available to their new significant other who might not be favorable to your family. Most of us want our assets to benefit our family – that is, our children, grandchildren, and so on. We don’t want our assets lost to people outside our family. A Living Trust, with careful tailoring of its instructions and terms, can protect the assets you place in the trust from these scenarios while allowing your beneficiaries to reap the benefit of the assets you allocate to them.
Also, if you want to leave an inheritance for someone with special needs or who is receiving government benefits, the inheritance could cause them to be ineligible for future benefits or to lose their current benefits. You don’t want that to happen. Or they may be required to spend the inheritance within a very short time, perhaps a single month or less, to retain their government benefits. And you don’t want that to happen either. Fortunately, you can leave their inheritance in the Living Trust with terms crafted to address this unique situation so that the inheritance in the Living Trust could serve to provide important supplemental benefits to them without affecting the program benefits which may be vital to them.
Is A Living Trust Right For You?
A Living Trust could be right for you. But it depends. It depends on your goals. It depends on what matters to you. It depends on what you want to achieve with your assets. It depends on how you want your assets to affect the people who matter to you. Simply put, the only way to know if a Living Trust is right for you is for us to look at it together. We’ll explore the answers to the questions, then we’ll look at the different estate planning options that are available to you. Often this process occurs with input from your financial advisor, your CPA, and your insurance agent so that we can each continue to serve you best. Contact me to learn more about a Living Trust and other options to achieve your Estate Planning/Elder Law goals.