A living trust is a legal document that allows you to explain exactly how you want your assets handled, appoint heirs and to name a trustee, who will fulfill the role of an executor upon your death. The living element of a living trust allows you to do all this while you are still living. The big benefit of a living trust is the fact that it allows your estate to bypass probate upon your death, because the trust passes on to your successor and allows them to then execute your wishes for your estate. A living trust also allows you to appoint someone to oversee your affairs, such as your financial assets, your legal affairs and your health care needs, if you become incapacitated while still alive. This is the biggest difference between a will and a living trust. A will only becomes effective when you die, while a living trust is active while you remain alive.
What is The Difference Between a Living Trust And A Regular Trust?
We have talked about the difference between a will and a living trust, but we haven’t yet covered how a living trust differs from a regular trust. Before answering that, it’s a good idea to define a regular trust. A regular trust or testamentary trust is a trust that only goes into effect after a person’s death. The trust creator will name beneficiaries who will then be allowed access to assets and the like after the individual’s death. Conversely, with a living trust, which is of course set up during a person’s lifetime, the person who sets up the trust is usually both the trustee (or the person who runs the trust) and the beneficiary (or the person who benefits from the trust property or assets). Of course, once the person who creates a living trust dies, it then transfers to the successor trustee to manage or distribute the assets to the beneficiaries.
Types of Living Trusts
There are two main types of living trusts. These are referred to as revocable and irrevocable living trusts. Read below to learn more:
Revocable Living Trust
This type of living trust allows a person to transfer their assets into the ownership of a trust. They still retain all control of their assets, because they are named the trustee of their revocable living trust. At any point in time, a person who creates a revocable living trust can change or “revoke” their living trust, thus its name. The assets within the trust will pass directly to the beneficiaries listed upon that person’s death, without having to go through the process of probate.
Irrevocable Living Trust
The other type of living trust, irrevocable is, as you may have guessed from the name, permanent. It allows a person to give away their assets during their lifetime. These assets, once given, are no longer in the trust creator’s control. This means the assets are no longer considered part of the trust creator’s estate. The benefit of this is the fact that because the assets are no longer part of the estate, they are not subject to estate taxes. Irrevocable trusts are rare, because it usually is only beneficial if a person has so much money, they could not hope to spend it all in one lifetime and they want to ensure their beneficiaries are not taxed at a high rate.
Other Reasons a Person Might Consider a Living Trust
Aside from easing the tax burden on beneficiaries, the following are some additional reasons a person might consider creating a living trust:
Minor Children/Beneficiaries
When children are young, creating a living trust is a way to safeguard their inheritance from them, allowed it to managed for them, by an appointed person, until they are old enough to responsibly handle the assets. It also allows the creator to set certain criteria for the inheritance, ensuring any assets given to a child are used responsibly.
Allows Property Management Before Death
As we mentioned above, one can set up a living trust so that their affairs are handled even if they are still living. Therefore, they won’t have to worry about bills being paid or being taken care of in their old age if they have a living trust. This is a huge benefit of a living trust with so many people living longer in today’s society.
Avoids a Contested Will
In general, wills are contested much more often than a living trust. Therefore, to ensure wishes are followed without contention, having a living trust is a good idea.
Keeps The Process Private
The probate process is public, so a will that is probated cannot be that private. By contrast, a living trust, since it avoids the probate process, remains more private.
To learn even more about a living trust and how it can benefit you, contact us today.