Those who have heard "living trust" probably are wondering if they need this. Since this is a legal question, the answer might be "maybe." If that is the case, then it is worth knowing more about living trust and what it entails. First, it is important to note that the living trust is different from last will. Those who are considering of having a living trust must also decide if they should make this or not. Whatever is decided, the individual must have a legal document proving the disposition of his or her assets just in case he or she passes away.
Definition of a Living Trust
A trust is more technically a revocable trust or a revocable living trust. This is legal paperwork wherein the individual's assets are put into a trust for his or her benefit while he or she is alive. The individual is regarded as "grantor". This is then transferred to the beneficiaries of his or her choice upon death by the one who has been assigned as the "successor trustee." This person will then be the representative just in case the owner of the trust become incapacitated. There is no intervention of the court whatsoever in this scenario.
A living trust can also be canceled. IT can have its own terms changed at any given point of time as long as the grantor deems fit.
What are the Benefits of the Living Trust?
There are various reasons why it is very crucial to have a living trust especially when there is estate planning. This avoids probate. Probate is when the court supervises the process of distributing the estate of a deceased person. In other words, if this happens, it costs money and time from beginning to end. Probate varies from one state to another, therefore the time and costs frames are also different. The process takes a couple of years just to finish and in that time being, it has already probably eaten up 10% or even more of the overall value of the estate.
This is why those who have estates are already encouraged to have a living trust so that the transfer to the beneficiaries can occur outside what is mentioned in the previous paragraph. This move leads to faster delivery of the individual's inheritance to his or her benefactors and there's not even a lot of additional costs.
Another advantage of the living trust is that it serves as a private document and this never ever becomes viewable by the public. This is one of the main differences of the living trust from a will. The transfer of assets when conducted via the living trust is confidential and only known by the parties that are involved. No one can search for this and figure out what is left to whom.
Steps on Creating a Living Trust
Setting up a living trust does not have to be particularly difficult. The preliminary steps involved in this process is conducting an inventory of the assets and deciding where these will go at the event of the benefactor's death. Another question that has to be answered is who will be the person responsible for handling the trust in case the benefactor is unable because of incapacitation or death. If the individual needs a template on how to write up the trust, there are living trust forms that can be found on the Internet.
Nonetheless, an experienced specialist is invaluable in the process of making a living trust. This is because it ensures that the benefactor is doing all the steps correctly, not only in composing the document but also in funding the trust along with the assets of the individual. Therefore the benefactor must make sure that his or her assets are titled properly. If this is not done, then these possessions will not be included.
Speaking of assets that are not included, a will that pours over is always commendable when it comes to trust because it catches the property that is inadvertently left in the trust. This also is included in the distribution. This saves the property from even being subjected to the intestacy of the state laws. This comes into effect when someone passes without a will. These laws also provide the distribution depending on the familial relationships which may also not match what the benefactor prefers.
The difference between the Living Trust and the Will
When the benefactor decides whether he or she needs a will or a living trust, it is very crucial to understand what makes them different from the other. A will, like a living trust, directs the assets and its disposition after the death of the benefactor. However, it does not provide for the management of assets the way that the living trust does. The will has provisions and it goes effect only after the death of the individual.
Other than that, the will also go through probate and because of this, it becomes a public record.
For those who are engaged in a complicated familial situation, for example, children are from more than just one marriage or relationship, a business within the family, vast amount of assets and properties in more than just one state, the people involved, especially the benefactor, use a living trust so that everything is clear and coherent and there is an estate plan if something does happen to him or her.
As for the people who have fewer assets, whether it be a simple distribution plan for a business or a modest estate, they are suggested to not go about the route of creating a living trust. This is because it will cost them more upfront to do this as opposed to just writing a will. Therefore, the latter is something they have to consider instead.
The Bottom Line is Get A Living Trust
Everyone can benefit from making a living trust. Even if the benefactor is not ready, drawing up a living trust with the help of a lawyer or an experienced professional can get the affairs in order even before something unexpected happens.
It is important to note that estate planning is done because it provides the benefactors and everyone involved the peace of mind that affairs and businesses are handled accordingly to the wishes of the individual and things will be made easier for the loved ones especially during a trying time.
Drawbacks to Living Trusts
Living trusts have downsides. When compared to wills, trusts are more time-consuming and this also involves ongoing maintenance. It is more troublesome to modify compared to a will. A trust that is drafted by a lawyer can cost as much as $1,000 and even more. However, there are self-help tools that are made available online and the cost is not as much as the one mentioned. A living trust must also have a simple will to serve as the back-up device.
Factors to Consider When Creating A Living Trust
Living trusts are not for the middle-income people who are in good health and younger than 55 years old. A living trust has no effect on an individual described as such. This is because this age group really does not have anything to worry about for the next years. Therefore, a serviceable will is easier to live with and also establish and can create a fine job in transferring the property to the benefactor's choice of beneficiaries. The will is already enough to do the proper job of transferring the assets to the benefactor's loved ones in the event that something occurs unexpectedly.
In the last decade, there are easy-to-use probate avoidance techniques like naming the beneficiary to inherit the securities and even free of probate. This trend will likely continue.
The biggest factor when it comes to creating a living trust is wealth. The wealthier the individual is, the more he or she can save for the inheritors by going around the probate.
The assets owned by the benefactor is significant. Owning a business or assets that he or she does not want to be tied up in the process of the probate might also push in creating a living trust at that tender age. Even if there is a small possibility that the benefactor will die soon, he or she won't risk making the executor report to a judge.
If the beneficiary is married, then he or she and the spouse must plan to leave a majority of the property to each other. There is also less reason to problemize and obsess about going around the probate. If there are many couples that own the big assets altogether and have filed in a joint document, then the probate will most likely not occur on the assets that they share. As for the other properties, there are a number of states that let the surviving spouse turn to expedited and probate procedures that are cheaper and faster than the average and standard rate.
Reasons Why A Living Trust Is Not Needed
There is no need to protect the assets from probate. The benefactors must also arrange for the assets to go to the beneficiaries outside of the probate. Home or other properties that are owned in a joint scenario along with the right of survival goes directly to the owners when the benefactors die. The same can be said about pensions, life insurance policies and retirement accounts. This then automatically transfers to the beneficiary.
It is possible to keep the bank accounts out of the probate and set it up as payable on the death accounts. This gives the recipient access to his or her money immediately when needed. There are a number of states that even allow the benefactor to name the beneficiary for cars. Then there are a dozen states that let the transfer on death deeds for real estate be conducted.
Probate can be daunting. There are states that streamline probates. For example, in California, the inheritors of estates have a value of $150,000 and this excludes the property that is passed directly from the beneficiary. If the individual finds this complicated and most likely to create confusion, then living trust is not the way to go.
There may be consequences that are unforeseen when creating the trust. When this is created, the beneficiary must name himself or herself as the trustee so that it is possible to control the assets firsthand. Those who are married obviously name their spouses as the successor trustee. This can, however, create problems if both become incapacitated. The family is then forced to come up with a co-trustee or successor to gain access to the finances. Naming another successor, as an adult child, is the best way to go around this.
Is Living Trust Right For The Benefactor?
The drawbacks mentioned in the previous paragraph are easily outweighed by the benefits that the benefactor gets especially those possessing large estates and those who are expected to die in the next decade.
Then there are cases wherein the probate is supervised so that the beneficiary receives what is rightfully so. There are individuals looking over the executor and his or her actions and there to make sure that the assets are documented and located and all debts and taxes are paid. All these are done to meet and honor the terms of the will.
Sometimes a living trust makes sense. If there are out-of-state property like a vacation home, putting this trust can save the heirs from the probate in the state. It is recommended that living trusts are kept in place and updated whenever needed. In doing so, this makes it less complicated for the people involved. It is also easier for everyone to go into affairs when everything is written down and documented.
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