The popularity of the living trust has soared in recent years as more and more people discover its signficant estate planning benefits. Like a last will and testament, a living trust allows you to designate beneficiaries for your assets. But unlike a last will, a living trust is not subject to probate court. As an added benefit, a living trust keeps the details of your estate private. Here are just a few reasons why a living trust may be right for you.
It Pays To Avoid Probate Court
Probate is the legal process through which your property is distributed to your beneficiaries. During probate, the court system must determine the validity of your will, appraise and inventory all of the assets in your estate, pay any outstanding debts, and then distribute whatever is left according to the instructions in your last will. Probate is often expensive, complicated and time-consuming. In many cases, probate can take up to 3 years to complete and take as much as 20% of your estate's total value. This means your loved ones could wind up waiting a long time to receive their inheritance.
How Does a Living Trust Work?
When you create a living trust, you are establishing a separate legal entity to hold whatever property or valuables you choose to place inside. In fact, one of the benefits of a living trust is that it allows you to gather all of your significant property (bank accounts, stock certificates, real estates, etc.) into one convenient "container" or imaginary "safe." It's an easy way to track all of your assets and manage them as a single unit.
As the creator or "grantor" of the trust, you retain complete control over your assets by appointing yourself as the trust's initial trustee. You can do whatever you wish with the property in the trust--this includes transferring assets into or out of the trust.
A living trust can be amended or revoked at any time.
How Property is Transferred
Upon your death, the person you assigned to succeed you as trustee (the successor trustee) takes over management of the trust and sees that all of your gifts are distributed to your beneficiaries. Your successor trustee may not change the trust, which becomes irrevocable at the time of your death. In other words, you can revise your trust while you're alive, but it cannot be changed after you're gone.
Potential Tax Savings
While most living trusts are created for the purpose of avoiding probate, you may also benefit from savings in certain kinds of estate taxes. An AB living trust, for example, can offer significant tax savings for a married couple with a combined estate value that is greater than the applicable federal estate tax exemption amount.
A word about Pour-over Wills
Many living trusts include what's known as a pour-over will. A pour-over will transfers or "pours" into your trust any assets not already owned by your trust at the time of death. This includes property such as checking accounts, cars and other personal items. Many pour-over wills also include provisions to name guardians for minor children and specify funereal and other last wishes.
Minor Children as Beneficiaries
If you plan on naming minor children as beneficiaries in your living trust, you may want to consider designating a trusted adult to manage your beneficiaries' property until they are old enough to manage it themselves. This includes any beneficiary under the age of eighteen, or any beneficiary you feel is not yet sufficiently mature to handle his or her inheritance responsibly.
Planning For the Future
One of the goals of good estate planning is to ensure the financial security of your loved ones. While nothing can replace your presence in their lives, with the right estate planning tools, you can continue to care for them even after you're gone. A living trust can help by ensuring that your gifts go directly to the people you love--quickly, privately, and without the delays and expense of probate.