What is the purpose of a comprehensive estate plan? An estate plan includes a number of different tools and strategies that all work together to accomplish your various estate goals and objectives. Although every estate plan is unique, one common addition to an estate plan is a living trust.
So, what is a living trust? Why should you implement it into your estate plan? Furthermore, how can a living trust benefit your estate planning goals? Read on to learn the answers to these questions!
Testamentary vs. Living Trusts
All trusts broadly divide into two types – testamentary and inter vivos, or living, trusts. A testamentary trust is a trust that does not become active until your death. A living trust, as the name implies, is a trust that becomes active during your lifetime. Once all of the elements of a trust are in order, a living trust can be activated. These elements include the:
- Maker – the Maker, also referred to as the “Trustor,” of a living trust is the person who creates the trust.
- Trustee – the Trustee is the person, or company, that is responsible for administering the trust terms and distributing the trust assets pursuant to those terms.
- Beneficiary – every trust must have at least one beneficiary, though a trust may have many beneficiaries. A beneficiary can be an individual, an organization, or even the family pet.
- Trust terms – the Maker of a trust establishes the terms of the trust. As the Maker, you may include almost any terms you wish as long as they are not illegal or unconscionable.
- Funding – a trust must have sufficient funding to accomplish the trust purpose. Funding may include almost any type of assets, including cash, securities, or real property.
Revocable vs. Irrevocable Living Trusts
Living trusts are further sub-divided into revocable and irrevocable living trusts. A revocable living trust can be modified or revoked by the Maker at any time and for any reason. On the other hand, the Maker of an irrevocable living trust cannot modify or revoke the trust once it becomes active. Modifying or revoking an irrevocable living trust can usually only be done with court approval, and then only for a very good reason.
How Can a Living Trust Benefit Your Estate Plan?
One of the first, and most important, advantages to using any type of trust in your estate plan is that assets held in a trust usually do not go through the probate process. Probate is the legal process that follows the death of an individual. It is used to ensure that all assets owned by the decedent are accounted for, any all debts of the estate (including taxes) are paid before assets are transferred to beneficiaries or heirs of the estate.
The probate process can take months, even years, to conclude, leaving assets tied up and out of reach of beneficiaries. Trust assets, however, are not a required part of the probate process.
Different Types of Trusts
A living trust can also be used in a wide variety of other ways in your estate plan. An irrevocable Medicaid trust, for example, can help you protect hard-earned assets while still ensuring that you qualify for Medicaid benefits should you need them to help cover the high cost of long-term care in the future.
You can use a revocable living trust for incapacity planning purposes. It allows you to appoint yourself as the Trustee of the trust. You also appoint your spouse (or whomever you wish to have control of your assets in the event of your incapacity) as the successor Trustee. You then transfer all your major assets into the trust. As the Trustee, you continue to control those assets as long as you are capable of doing so; however, should you ever become incapacitated, the successor Trustee will automatically take over without the need to petition a court and without any lapse in control over your most important assets.
These are but two examples of how living trusts, when used appropriately, can help you attain important estate planning goals. If you have additional questions or concerns about creating a living trust, or about how a living trust might benefit your estate plan, contact the experienced Texas estate planning attorneys at The Mendel Law Firm, L.P. by calling 281-759-3213 to schedule your appointment today.