We plan for everything for our current life as well as our future like planning for home, children’s education, retirement, etc. However, while planning all this along with accumulating money, we forget or sometimes overlook one thing and that is estate planning. It is being overlooked due to several conceptions of people like some think that it is meant only for the wealthy, while others think that it is for the older folks only, however, the fact is that irrespective of your age and amount of assets you own, everyone should plan their estate.
Apart from this, there is also a misconception among the people that estate planning means to write a last will and getting it probated. However, the fact is that not only provides you to plan for after death scenario i.e. the distribution of your estate but also allows you to plan for during life circumstances as well because we don’t know the uncertainties of life.
While there are a lot of options to plan your estate, however, in this article we are going to discuss the living trust. A living trust is a legal body or agreement that is created while you are alive in which a designated person by you, called trustee, manages your assets for the benefit of your designated beneficiaries and distribute them to the heirs, after your demise.
What is Living Trust in Estate Planning?
The person creating the trust is called the trust creator or settler or grantor who places his/her assets under the name of the trust and designates a trustee who could be the creator himself/herself or a person or bank designated by the creator or both (called co-trustee) to hold the legal ownership of the assets that has been placed by the creator in the trust. The creator also designates a successor trustee who will be responsible to follow the guidelines of the trust after his/her demise. In the case of co-trustee, he/she become the successor trustee of the trust.
A living trust helps you to pass on your assets in a smoother way avoiding the time and money-wasting process of probate. Upon the settlor’s death, the successor trustee will take over the responsibility and will first settle all the outstanding debts, pay pending bills, fill the tax return, etc. After this, he/she will dispense the assets to your designated beneficiaries by transferring the ownership of that asset in their names as per your desire.
In case any of the beneficiaries is still young, then the successor trustee needs to follow the guidelines set by you in the trust document. It may be to transfer the property to the custodian appointed by you until the child becomes adult according to your state’s law or to transfer the property in a child’s sub-trust using for the benefit of the child until the child attains a certain age that is also designated by you.
Types of Living Trust-
There are two types of a living trust: revocable and irrevocable, and are summarized as mentioned below:
Revocable trust: A living trust is said to be revocable as it allows you to make amendments and revoke it whenever you want to while you are alive. During your lifetime, you are considered as the owner of the property and have full control over it. After your demise, the successor trustee will take care of the asset’s dispensation. However, it doesn’t reduce tax and is not protected from the creditors as you were the assets’ owner while you were alive. In such a case, if you lose any lawsuit against the creditors then the trust is closed and money is handed over.
Irrevocable trust: A living trust is said to be irrevocable as once you have signed the agreement and the trust is formed, you are no longer the owner of the property and thus, can’t change anything in it. As the assets are no longer owned by you, so they will not be subjected to the estate tax. Also, the creditors won’t be able to pursue for the payment of your debts except for the case that fraud is involved, hence, protected from creditors as well.
If you think that trusts are meant for wealthy individuals, then you are wrong as living trust can be considered when you are concerned about your injury or health i.e. incapacity. In case of incapacity, the successor trustee appointed in the trust will be responsible to manage the financial affairs for you.
Also, the trusts are rarely contested as compared to the last will. A trust also helps you to restrict giving all the wealth at once to your heirs and also helps you to fund for the minor until they become adult. Notably, to make your asset to be in trust, you must ensure that its ownership has been transferred to the trust.
As compared to a will, a living trust becomes effective as soon as it signed while you are alive and doesn’t need to go to probate upon the incapacity or demise of the settler. Living trusts are structured to help your heirs by avoiding probate and inherit the monetary value you want them to receive without wasting much of time and money in getting the assets. It is advised to contact and discuss with an attorney to know if a trust is beneficial to you or not and what kind of estate planning will be beneficial for you.