There comes a time when you need to think about setting up a trust that makes sure your family is taken care of. Wills are the first thing that comes to people’s minds regarding wealth distribution. A will is a written document that designates how your property will be distributed when you die. It is revocable, which means it can be canceled and changed at any time while you’re alive. If you have a will, it also allows you to appoint an executor, a guardian for your minor children, designate how to pay your taxes and forgive debts.
What are Living Trusts?
A living trust is a legal document that an individual can use to simplify the distribution of their assets after passing away. If you choose to create a living trust, you will appoint a trustee manager or managers to distribute the assets according to your wishes. Unlike a will, a living trust gives you more options and control over your estate. This serves the purpose of managing your assets (bank accounts, real estate, investments, vehicles, personal property) in a trust during your lifetime because often you’re the trustee; it is also setting up the management of your assets and estate after your death or incapacity with naming a successor trustee, who acts as your representative and transfers your assets to the beneficiary based on your wishes. The naming of a successor trustee is a key difference between a will and a living trust.
Many people form a trust in addition to having a will, rather than as an alternative. An example of the way that these two documents work together is if you get a “pour-over will.” This type of instrument states that anything that’s not already in the trust should be included at the time of death.
You get many advantages by choosing to create a living trust, and the most important one is avoiding the cost and time of probate for your beneficiaries. You also have the ability to protect your assets by removing beneficiaries from the list. It’s also important to mention that a revocable living trust provides maximum privacy. The asset distribution and your stipulation from the contract will be kept private. On the other hand, all information from a will becomes public. Nonetheless, there are multiple types of trusts that can be created through estate planning. We’re including some examples below.
Basic Characteristics of Trusts
From grantor and trustee to beneficiary, a trust contains multiple elements. Below are the basic characteristics of trusts:
Grantor
The title of “grantor” refers to the individual setting up the trust. The grantor is the one who has the authority to transfer property and assets into the trust.
Trustee
The trustee is the person who manages the property and assets on behalf of the grantor. The trustee will temporarily receive control over the estate but will not have ownership. The trustee will ensure that the assets are distributed according to the grantor’s wishes.
Beneficiary
The beneficiary is the one who receives the assets included in the trust. A trust can have multiple beneficiaries, and each one can receive a different number of assets.
Property
Property represents the assets held in the trust. Property is not limited to real estate, and it can include cash, jewelry, artwork, family heirlooms, and more. In legal terms, property is also called the “principal” or “corpus.”
Revocable Trust
As the name implies, the revocable trust gives the grantor the option to change the terms whenever or as many times he wishes.
Irrevocable Trust
An irrevocable trust can’t be changed or revoked. It can be used to transfer ownership of assets to the beneficiaries directly.
Taxes
There are multiple types of trusts, and each of them pays separate taxes. Attorney counsel is required to receive the federal identification number and file an annual return for the trust. In addition, it’s possible for some living trusts to use the grantor’s tax identification number.
The Types of Trusts That Can Be Created Through Estate Planning
Wills;
Revocable Trusts to Avoid Probate;
Trusts to Minimize Estate Taxes;
Credit Shelter Trust Planning for Minimizing Estate Taxes;
Irrevocable Insurance Trusts;
Supplemental Needs Trust;
Minor’s Trusts;
QTIP and QDOT Trusts for Spousal Planning;
LLC’s;
All Aspects of Business Succession Planning and Deed Transfers.
As you can see, there are numerous types of trusts that can be created through estate planning. Choosing to create a living trust might seem overwhelming if you are not familiar with your local state laws, but this doesn’t need to be the case. We are here to help. You can choose to use professional attorney counsel in order to create a bulletproof trust that guarantees your assets will be distributed just the way you wish.
The Pros of Setting Up a Living Trust
Here are the pros of setting up a living trust:
Privacy;
Unlike a will, the living trust ensures complete privacy. The asset distribution and stipulation from the trust will not be released for public record.
Protection;
A living trust can be used to protect your assets. For example, you can set up an irrevocable trust so that a creditor can’t seize your assets in a judgement. After setting up an irrevocable trust, the property will belong to the beneficiary.
Improved Asset Control;
The living trust will give you complete control over your estate and asset distribution. You will choose the beneficiaries for the assets and also the stipulations that they need to meet in order to receive the goods.
Proper Distribution of the Assets.
Another important pro of choosing to set up a living trust for your estate is that in the event you become incapacitated and can’t make financial decisions, a trustee appointed by you will ensure the proper distribution of your assets. If you haven’t nominated anyone, a court will do it for you.