At Capital Fiduciary Advisors we have recently had a number of conversations regarding whether or not a living trust is beneficial in estate planning. In turn, we wanted to provide and share an overview on some of the In's and Out's in the event it could be advantageous to you and your family. A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives. Learn more below about what a living trust is and some of the potential benefits to help you determine whether it is right for your situation.
What Is a Living Trust?
A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically, you) has full power to manage these assets. A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets may be automatically passed on upon your death.
If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.
Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with an estate planning professional. Here at Capital Fiduciary Advisors we have long standing referral partnerships with Estate Planning Attorney's that we are happy to introduce and assist in the planning.
Why Create a Living Trust?
The living trust offers a number of potential benefits:
- Avoid Probate: Assets are designed to transfer outside the probate process, providing a seamless, private transfer of assets.
- Manage Your Affairs: A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided that you have adequately funded it and named a trustworthy trustee or alternative trustee.
- Ease and Simplicity: It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.
- Avoid Will Contests: Assets passing via a living trust may be less susceptible to the sort of challenge you might see with a will transfer.
The Drawbacks of a Living Trust
Living trusts are not an estate planning catch-all. They won’t accomplish some potentially important objectives, including:
- A living trust is not designed to protect assets from creditors. It is also considered a “countable resource” when determining your Medicaid eligibility.
- There is a cost associated with setting up a revocable living trust.
- Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance, since you are no longer the owner.
- A living trust is not a mechanism to save on taxes, now or at your death.
Revocable vs. Irrevocable Trusts
Sometimes, you might hear a living trust referred to as a revocable trust, meaning that you can make changes to it after it’s created. These changes could include changing beneficiaries or trustees, changing the assets that are included in the trust or modifying any stipulations.
This is in comparison to an irrevocable trust, which is a trust that can’t be changed after it’s created. Generally, irrevocable trusts remove assets from your estate, which may limit estate tax upon your death. Irrevocable trusts require a qualified attorney to set them up.
Is a Living Trust Right for Me?
Every estate planning situation is different, so consider working with a financial advisor or attorney who understands your unique situation. But these questions may offer further insight into whether a living trust is right for you:
- Will you be leaving significant assets to your heirs? Trusts cost more to establish than wills, but they may pay for themselves if you are able to avoid the expenses associated with probate.
- Is privacy a concern for you? With a living trust, all assets are kept confidential and aren’t part of public record (unlike a will).
- Do you expect your will to be clear-cut without much dispute? If so, you may not need to incur the expense and process of creating a living trust.
- Is there a minimum net worth necessary for you to create a living trust in your state? An estate planner will be able to help you with this concern.
- Will you and your spouse have different beneficiaries, such as children or grandchildren? If so, a living trust may help determine where each spouse’s assets will go without needing the probate process.
Living trusts are just one piece of the larger estate planning puzzle. Ensure your assets are protected and organized upon your death by working with a qualified professional. Please feel free to reach out to our team for a conversation on whether a living trust can be beneficial to you and your family.
Happy Holidays from all of us at Capital Fiduciary Advisors. We wish you and yours all the very best this season.
Chris Williams, President & CEO
This content is developed from sources believed to be providing accurate information, and provided by Capital Fiduciary Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.