Most people have heard of “trust funds” but many of us don’t understand what a Living Trust is, how it works, who can benefit, and how it needs to be managed.
The Living Trust is a legal tool within the family of Estate Planning. Though it costs more to create a Living Trust as compared to a Will, a Living Trust offers many more advantages than a Will, both to the trustor (the one who creates the Trust) and to the trustor’s intended heirs.
As you may know, when a Will is the primary legal document in place at the time of death, the estate is settled in court. This is referred to as Probate. Probate matters are public record, and the Probate process can be time consuming and costly.
A Living Trust, however, can help you avoid Probate. That’s just one of its advantages. There are financial advantages to a Living Trust also:
- Income taxes and estate taxes can be reduced
- Tax-free gifting can be set up
- Assets can be less likely to be challenged
- Your estate can be better protected as compared to when a Will is your primary legal tool
- Your beneficiaries can get advice from professional asset managers when a bank is named as a co-trustee
Basically, here’s how a Living Trust works in terms of its setup and its flexibility:
- You determine your own rules of the Trust (of course, with legal guidance)
- You name a trustee who manages it per your instructions
- Your assets are transferred into your Trust; they’re not part of your estate, so they’re not (normally) subject to the Probate process
- You can set up specific provisions for heirs – even have several for several loved ones – with controls if you wish, that dictate how funds from the Trust are to be disbursed. You can dictate time schedules; even what the funds can be used for.
There’s a lot more to learn about the Living Trust and its many advantages. But it’s essential that you secure the counsel of an attorney trained in Living Trusts and Estate Planning – this is not something you can do yourself.