When you think of estate planning, you often think of making a will. Although, wills are an important part of estate planning, there are many alternatives. Among the alternatives is a living trust. Although a living trust and a will have some similarities, living trusts offer some important advantages over a will.
What is a living trust?
A living trust is a written agreement where you, the creator of the trust, choose someone to be responsible for the management of your property-the trustee-for the benefit of another person-the beneficiary. You do not have to designate someone else to be the trustee, as you can name yourself to the role. The reason that it is called a living trust is because it is created during the creator’s lifetime, not after his or her death.
The trustee has the power to manage the property and has a legal duty to do so in accordance with the terms of the living trust. If you name yourself the trustee, you have full control of the trust’s assets during your lifetime, allowing you to sell, invest, and exchange your assets any way you would like.
The advantages of a living trust
Both a living trust and a will specify who will get your assets upon your death. When you die, your assets will be distributed to the beneficiaries of the trust according to the terms of the trust. However, trusts offer several important advantages over wills.
Probate avoidance. Once you die with a will, it must go through probate. During this process, the court verifies the authenticity of the will, distributes property according to the terms of the will and pays any debts owed by your estate. This can be a time-consuming process that can tie the estate down with probate expenses, reducing the amount available to distribute to your heirs. However, with a living trust, your property is immediately distributed to whomever you specify in the trust document upon your death, without the necessity of probate.
Greater control. Unlike a will, a trust gives you a greater say in how and when your property is distributed. You can make provisions in the trust document specifying how your beneficiaries spend the money, such as limiting the money to be spent for educational purposes. Additionally, you can also require your beneficiaries to reach a certain age or do things like graduate college before they are able to receive the money. Finally, the greater control a living trust provides allows you to include provisions that can help you reduce your federal or state estate taxes.
Privacy protection. Probate proceedings are a matter of public record like any other court proceedings. Once the proceedings have been completed, anyone with the desire to do so can obtain information about the terms of the will and other sensitive information. Since living trusts avoid the probate process, it allows you to keep the circumstances of your estate plan away from the public’s prying eyes.
Consult an estate planning attorney
Estate planning is a complicated business without a one-size-fits-all approach. If you are considering an estate plan, it is important to consult with an experienced estate planning attorney who can review your personal and financial situation and recommend an option that will best accomplish your goals and minimize your tax liability.