How Does a Living Trust Work?
November 8, 2007 | Leave a Comment
A Living Trust is also known as an “inter vivos” trust. It is created during your life and has three key elements:
- Trustor – This is the person who sets up the trust;
- Trustee – The person appointed by the Trustor to actually manage the trust; and
- Beneficiary – The person(s) who receive the assets from the trust.
When you create a trust, as Trustor, you determine the terms of what goes into the trust, how its managed, and eventually distributed. That means you have complete control over your Living Trust. For example, only you can make any changes to the Trust (by amending it), or cancel it (by revoking it).
When you create your trust, you appoint a Trustee. So, as Trustee, you manage your estate in much the same way as you do now. You may: buy, sell, mortgage or give away assets that are held by the Trust; transfer ownership of property back into your name; add property to the Trust; or change your Beneficiaries or when they are to receive the inheritance.
Once you are deceased, your Successor Trustee(s) will take over management of the Trust on your behalf and make the final distributions, as you have directed.
Your Beneficiaries will inherit your estate - the property held in your trust passes to your Beneficiaries according to the terms of the trust. The probate court usually does not have to be involved, and the transfer of property is a straightforward process. AND happens just as you have directed.
Disadvantages of a Living Trust
November 5, 2007 | Leave a Comment
Disadvantages of Creating a Living Trust. Disadvantages to creating a Living Trust are few. The primary disadvantages are:
The cost of establishing a trust. A trust will cost more than a simple Will, though these costs are commonly less than the cost of going through probate.
The process of funding a trust can be tiresome and time-consuming. This is most commonly a burden if there are many bank accounts. Most assets are easily retitled to the trust with a little guidance from your attorney.
Finally, a Living Trust does not shelter your assets from creditors.
Advantages of Creating a Living Trust
November 4, 2007 | Leave a Comment
What are the advantages of creating a Living Trust? Depending on your family circumstances, the size and composition of your estate, and your goals, many advantages exist for creating a Living Trust. These advantages include the following: You want to avoid probate. Since the property is no longer in your name as an individual, but is now in your name as trustee, there is no reason to go through probate. This is a savings of 5%-10% of your gross estate. An additional benefit is that it will only take weeks instead of years to transfer your property to your heirs.
The trust will remain private. Unlike a will, which has to be filed as a public record in the probate court, the trust remains a private document even after your death.With certain provision in the trust, you can completely avoid or reduce estate taxes. This can mean savings of literally thousands of dollars.
You avoid the potential of a guardianship hearing because you have already named someone to take your place if you are unable to handle your affairs. In addition, you can set up your trust to allow your family Doctor to make the decision of whether you can handle your own affairs. The alternative is to allow a judge to do this in a public hearing.If your heirs are too young or immature to handle the money you will leave them when you die, you can use a trust to determine when they will receive the money and how much they will receive each time. For example, you can leave instructions that say, when my child reaches 30, he gets 1/3 of the property. When he reaches 35, he gets another 2/3. And when he reaches 40, he would receive the final 1/3, or the remaining balance of the estate.
The trust is less open to attack than a will. This means that your wishes have a better chance of being carried out.In the context of a second marriage, the trust is an excellent way to protect both the surviving spouse and the children from your previous marriage.
If you have property in another state the trust will eliminate the probate in the other state. Transferring property through a trust allows your property to receive a stepped up basis. This could greatly reduce the amount of capital gains tax your heirs will pay.Setting your finances in order will give you peace of mind.