Our estate planning and trust lawyers can evaluate your particular needs and circumstances to determine whether your estate would benefit from having a Living Trust.
If you are relying solely on a Will to handle your estate, it will almost certainly guarantee that your estate will go through the probate—which can be expensive and can potentially last for months or years, depending on the complexity of the estate and whether the Will is contested. Whereas, if you have a Living Trust you can avoid the need for probate altogether if the Trust is fully funded (meaning all of your accounts and assets have been transferred to the Trust).
Security During Trustmaker’s Lifetime
A Will does not take effect until you die. But what happens if you become incapacitated before you die? Several medical conditions can potentially render you legally “incompetent” (such as Alzheimer’s, dementia, severe stroke, brain injury, etc.). If you’re relying solely upon a Will, it provides no security for your assets as long as you’re alive.
On the other hand, a Living Trust takes effect immediately when it is created. It designates a Trustee to manage the Trust’s income, financial assets, and property while you are still alive and that management will continue after your death.
When a Will is probated, the actual Will is filed in the probate court and it becomes a public record—meaning anyone can see it. A Trust Agreement is a private document. It need not be filed in the probate court or in any public records, thereby maintaining the privacy of the Trustmaker and the beneficiaries of the Trust.
Common Benefits of Living Trusts
Living Trusts, whether revocable or irrevocable, offer several potential benefits, including (but not limited to):
- Control over distribution and preservation of assets;
- Potential federal tax savings;
- Preservation of assets and income of the Trust for the benefit of its beneficiaries;
- Continuity over the management of the income and assets of the Trust beginning during the Trustmaker’s lifetime and continuing after death;
- Control over the distribution of income of the Trust (for example, paying educational expenses for children or grandchildren);
- Control over the distribution or sale of Trust assets;
- Privacy; and
- Avoiding probate altogether.
Types of Living Trusts
A Living Trust can be revokable or irrevocable. There are pros and cons for each. A common requirement of both types of trusts is that the assets (including real estate and personal property) must actually be transferred into the ownership of the Trust. In other words, the Trust becomes the owner of the assets while the creator of the Trust is still alive. A Trust is created with the formal signing of a Trust Agreement.
Benefits of Revocable Living Trust
There are many potential benefits specific to a revocable Living Trust, including:
- The Trust can be modified or terminated at any time before the Trustmaker dies;
- The Trustmaker can serve as the Trustee, managing the assets and income of the Trust;
- The Trustmaker can be the sole beneficiary (or one of several beneficiaries) of the Trust;
- If the Trust is terminated, the Trust’s assets simply revert back to the Trustmaker;
Limitations of Revocable Living Trust
A revocable Living Trust provides no federal tax savings. Income of the Trust is taxed to the Trustmaker just as any other income. Another limitation of a revocable Trust is that it provides no protection from creditors. Although a revocable Trust can be terminated during the Trustmaker’s lifetime, it becomes irrevocable upon death.
Uses and Benefits of an Irrevocable Trust
Irrevocable Trusts are used almost exclusively where there is a large estate and primarily for the purpose of reducing federal taxes. When you transfer an asset to an irrevocable trust, it has the same effect as gifting the asset to an heir of your estate. Some benefits of an irrevocable trust include:
- Locking in the exemption for your estate before it decreases;
- Prevents appreciation of Trust assets from increasing your taxable estate;
- Protection from creditors;
- Trustmaker can be the sole beneficiary or one of several beneficiaries of the Trust; and
- Can make you eligible for means-tested benefit programs, such as Medicaid.
Limitations of Irrevocable Trusts
In exchange for the federal tax benefits and protection from creditors, a Trustmaker must surrender much of the control over an irrevocable Trust. As the name suggests, an irrevocable Trust cannot be terminated or even modified after it is created—except in very limited and rate circumstances.The Trustmaker cannot be the Trustee of an irrevocable Trust. That means a third-party Trustee must be appointed to manage the assets and income of the Trust—usually being a professional Trustee.
Consult with one of our Living Trust lawyers to determine if a Living Trust would benefit you.