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What is a Living Trust?
Failure to plan is a plan for failure, and a living trust is one of the best plans you can put into motion for your peace of mind and for the future of your loved ones. A living trust, also known as a revocable trust or irrevocable trust, is a legal arrangement that determines how your assets are managed and distributed. Unlike a will, a living trust can go into effect while you are alive and can determine how your assets are distributed to your family after you pass away.
Another way that a living trust differs from a will is that it must be maintained. Your will will need revisions and edits every three to five years after its creation, whereas a living trust will require more attention. Any time you acquire property, you will want to add it to your trust immediately, lest it goes through probate after your passing.
The Difference Between Revocable and Irrevocable Trusts
There are many types of living trusts, but they all fall into one of two categories: revocable trust and irrevocable trust. A revocable trust can be changed at any time by the grantor or creator during their lifetime as long as they are seen as competent. Grantors can name themselves as the initial trustee. This allows them to maintain control of and use their property while alive. When they pass away, the trust becomes irrevocable. At that point, the successor trustee will follow the trust documentation to distribute your assets as instructed in the trust.
An irrevocable trust can only be changed once executed with a court order or beneficiary approval. Once you transfer your assets to an irrevocable trust, you will not be able to make changes to or control those assets. To do so would require an agreement between the trustee and the beneficiaries or a court order. Irrevocable trusts are used less often because of the lack of control they offer. They do, however, help you avoid certain taxes and avoid certain creditor claims.
Why Use a Living Trust?
You may be wondering why you would want to use a living trust. Or, why should you use a living trust instead of a will? Living trusts have a few benefits, the most notable being that it helps your loved ones avoid the lengthy and potentially expensive probate process. Probate is the process that occurs after you pass away that involves administering and validating your will.
A living trust helps you maintain control of your assets after your passing by defining what you would like done with your assets. It offers a layer of protection to your assets should you become incapacitated during the life of the trust.
Using a living trust also keeps your assets and their transfer private. Since your beneficiaries will avoid probate court, the assets can be smoothly transferred to them.
Who Needs a Living Trust?
You may be wondering if a living trust is for you. A will meets most of the average person’s needs, but here are a few circumstances where a living trust may be preferable.
Business Owners
You may be interested in a living trust if you own a business. It allows you to transfer business assets from yourself to the trust. Your trust will be the owner of the business, but you will maintain powers outlined in your operating agreement, like voting.
Owning Property in Multiple States
If you own property in multiple states, it will have to go through ancillary probate for each state you are not a resident of. If you place these properties in your living trust, the properties will be automatically transferred to your beneficiaries without having to pass through probate court first.
Estate Taxes
If your property is held in an irrevocable trust, it may reduce the estate tax your estate owes. This means more of your wealth can pass to your beneficiaries.
How to Create a Living Trust
When planning for the inevitable, it is best to have an experienced lawyer to help guide you through the process. They will help you decide what kind of trust to use and help explain the benefits of a revocable versus irrevocable trust. They will help you choose a trustee, name beneficiaries, and create the documents. Once your trust is created, it must be executed and funded. You will want to transfer your assets to the trust.
The compassionate attorneys of Peak Legal Group are here to help you with this complicated process. Please contact us, or call as soon as possible at (610) 989-7064
