Making a will is a common choice for transferring an estate or property to beneficiaries. However, this is not the only available option for estate planning. A living trust is fast gaining popularity because it offers ways to avoid probate, which can be time consuming and costly because it is a legal process to determine whether a will is valid or not.
When opting to choose a living trust as part of your estate planning, it would help to know the basic facts about a revocable living trust.
Ten Things to Know
1. What is a revocable living trust?
A living trust is made while you are still alive. A trust involves three people: the creator, the trustee/s, and beneficiaries. You and your spouse can be the trustees in order to have full control of the property indicated in the trust. It can be revocable because as long as you are mentally competent you can change or dissolve the trust anytime. The trust will be irrevocable only after your death.
2. What is the difference between a living trust and a will?
Inheritance instructions are both contained in the living trust and a will. It will tell who will inherit your property and the provisions governing the document.
A living trust is commonly chosen by people with concerns on privacy and probate. A living trust will not be made public so long as no trustees or beneficiaries question or seek court approval of the accounts.
3. What are the consequences of not having either a will or living trust?
Having no estate plan of any kind can automatically make your spouse or closest heir the beneficiary of your properties. The state can also assign a person you might not like to be the one to distribute your property and at the same time be the legal guardian of your minor children.
4. What can and cannot be done by a living trust?
A living trust can give you peace of mind when it comes to the handling of your assets. It can also ensure the protection of your heirs when it comes to financial matters. Your estate will not undergo probate which can save time, cost and delay before the heirs can get what you have given them. If your living trust is worded properly, it can also serve as a power of attorney. Provisions indicated in your living trust can be passed on to you beneficiaries either as soon as after your death or can be portioned out in the amount you specify over time. Your lawyer can also make some saving clauses in the trust document that can help reduce state and federal estate taxes.
In case your heirs are dissatisfied, the trust can resolve conflicts in the inheritance arena. Cutting off a beneficiary out of the trust can be the start of the issue just like a will.
5. Who are the trustees?
Trustees are the people who have full control and authority over the trust. They should be mentally competent to handle the property in the trust. As the creator of the trust, you and your spouse can be named as the trustees. In the event that illness or disability hinders you from managing your property, your co-trustee or successor trustee will be the one to manage your affairs.
You can assign your children to be your successor trustees as well. If you are not confident that they will distribute the assets according to the instructions in the trust, a professional fiduciary can be named as a successor trustee. This could be a person from a professional trust company, trust department bank or from a private fiduciary.
6. Do I need to put a large amount of money upon the creation of my living trust?
Funding is not necessary when creating a trust. A token dollar is all you need to start with your trust, and you can put in as much asset as you own later. You can even choose to fund your trust after you pass away. Certain advantages can be derived on each choice depending on your needs and concerns.
7. Do I need a lawyer when preparing my living will?
Only you can decide if the added expense of hiring a lawyer is worth it to you.
8. Is a revocable trust right for me?
While many can benefit from making a living trust, some might decide they don’t need it. It may depend upon the value of your estate. Simple estates with few assets and investments may find that a will is all they need. A trust can involve more expenses than a will. Studying the subject can help you decide on what estate planning fits you best.
9. Is a revocable living trust exempt from Estate Taxes?
No! For tax purposes, any property held by your Revocable Living Trust is treated as though you still owned it in your personal name. The trust’s tax ID number is the settlor’s social security number. Also, all of the trust’s income is considered personal income to the settlor and is reported on his or her individual income tax return rather than on a separate trust income tax return.
10. Once I transfer property to a Living Trust, is it still mine?
Yes. All trusts divide the ownership of the trust property into the legal element and the equity element. The legal ownership is generally associated with the obligations that come with holding title to property, while the equitable ownership is associated with the benefits, including the right to possession and enjoyment of the property. In a trust, the trustee owns the property in a legal sense, but he or she holds that property for the benefit of the trust beneficiaries. Since the person creating the trust is also the trustee and current beneficiary, they own both the legal interest and the equitable interest, but hold them separately – the equitable interest in the personal name as settlor and beneficiary of the trust and the legal interest in the official role as trustee of the trust. In any event, he or she retains the right to amend or revoke the trust at any time, with the ability to return all of the trust property to individual ownership.
Source: 1-2-Law: https://www.12law.com