Writing a will is not the only way to pass down your estate. Even if you don’t have a huge mansion, yacht, or bank account to leave behind, you can easily manage the distribution of your assets through a living trust. The best part about creating a living trust is that you can monitor your assets while alive, only passing down the ownership after your demise.
The will probate process is tedious as it takes some time to consider its validation before the distribution of assets. On the other hand, living trusts have numerous before-death and post-death benefits.
Depending on your circumstances and estate, you can choose from three types of living trusts and decide whether creating one is in your best interest.
What is a living trust?
A living trust is a legally binding document responsible for distributing your assets after your demise. It dictates who, where and when inherits what part of your estate to avoid complications after your passing. The distribution process entails after your death through a trustee you appoint when creating the legal agreement. The trustee is responsible for the fair distribution of your estate and, depending on your terms, may also be responsible for managing the assets. A living trust enables you to take control of the distribution of your assets when you’re no longer around or capable. It also gives you control over your assets as long as you breathe.
Types of living trusts
There are three types of trusts – revocable, irrevocable, and specialized.
A revocable trust can be revoked, altered, or changed before your demise. When creating a Trust that is revocable, the agreement isn’t permanent and bears some flexibility to change. With a revocable trust, you can change the trustee, add or remove assets, or change beneficiaries per your liking. Therefore, a revocable trust gives you the most control over your assets and distribution.
In contrast to the former, an irrevocable trust is set in stone. Once you sign the agreement, without the beneficiaries’ consent, you cannot change it. In an irrevocable trust, after signing, you don’t have legal property rights to monitor assets while you’re alive. An irrevocable trust minimizes estate tax payments as well.
Specialized trusts are for particular circumstances, like when you plan to distribute your assets to a charitable organization. For example, if you have a special-needs beneficiary, like an offspring or grandchild, creating a specialized trust will assign them your assets without the risk of losing ownership.
How does a living trust differ from a will?
Will and a living trust are both used for nominating beneficiaries for your assets, with a few differences:
- Effective date
A will is in effect after your demise, unlike a living trust. If you have an irrevocable trust, you may grant ownership rights to your beneficiaries while you are alive.
- Will probate
A will probate process is necessary to validate the legal agreement of asset distribution. However, living trusts do not require legal validation and are in effect depending on the type.
Preparing for a will costs less than a living trust’s preparation. However, the will probate process may cost your beneficiaries a lot.
Unlike a living trust, a will is a public document. On the other hand, matters about living trusts are dealt with privately.
Living trusts do not bear the same level of flexibility as a will. For example, with a will, you can appoint legal guardians for minors, but not in living trusts.
Living trusts enable you to appoint a trustee – someone responsible for distributing your assets after your demise. Will doesn’t allow appointing a trustee.
Even with a living trust, you may have to create a will, also called a “pour-over will.” A pour-over will is a safety net that protects assets not included within the living rust, regardless of intention.
Advantages of a Living Trust
A living trust is a beneficial way of distributing your assets.
Here are some of its advantages:
- No will probate
A probate is a legal process where the court validates the contents of your will, settles the assets, and distributes them. The probate process also includes any estate taxes that your beneficiaries may be liable to pay. Since the trust already owns your estate, living trusts don’t have a probate process. However, the will probate process is costly and may involve your beneficiaries in unwanted legal proceedings; thus, creating a living trust is beneficial.
- Separation of personal and financial matters
A will is a public record, whereas a living trust is not. Therefore, a living trust allows you to separate your personal and financial matters. A will is accessible to anyone outside your family or beneficiaries. However, living trusts do not have a probate process; thus, everything is private.
- Protection for your beneficiaries
Living trusts extend protection to your beneficiaries due to the lack of probate and by appointing a trustee. For example, a beneficiary on the verge of getting a divorce or someone with poor money management skills may not use the inherited property wisely. A will may not guarantee the proper use of assets, but a trustee ascertains the wise use of your estate. You can set guidelines for your trustee and beneficiaries to make the process easier.
How to set up a living trust?
Before rushing to a legal advisor or drafting the document yourself, consider enlisting all your assets to differentiate the ones you want to include in the trust. Compile the legal documents – titles and deeds – for each asset and make a list of beneficiaries for your estate. Next, decide which type of trust you want. You can appoint yourself as the trustee for a revocable trust and choose a successor trustee. For an irrevocable one, you’ll have to select someone responsible whom you trust.
A living trust is more secure and private than a will when it comes to the distribution of assets. It may cost a little more than drafting a will and take some time, but it is worth the hassle. Check out reputable and trusted sources for legal guidance and the drafting of your trust to ensure a smooth process.