What Does A Living Trust Do?
What Does A Living Trust Do?
A “living trust,” or more properly named a “revocable living trust,” is a written agreement that appoints (or designates) a person of your choice to be responsible for managing your property. If we break down the title of “revocable living trust,” we find the following definitions: (1) It’s “revocable” because you can change it, amend it, or revoke it, prior to your death as long as you are mentally competent. (2) It’s “living” because it is established or created during your lifetime and while you are mentally competent. (3) It’s a trust because the law allows for you to create or establish an agreement to provide for the management and/or distribution of your assets to your beneficiaries after your death.
In addition, a living trust involves three (3) parties: The first party is you; as the creator or grantor of the agreement. The second party is the trustee or trustees (which is typically you and/or your spouse) who agree to manage your assets during your lifetime as directed by the terms of the trust. The third party is the beneficiaries, such as your children, a loved one, or a recognized charity.
Now that you understand what a trust is – and its purpose – the following explains what a trust does for you:
1. A living trust does not go through probate.
In fact, as long as your living trust is properly set up – – which means you signed it, had your signature notarized, and transferred property (such as your home, bank accounts, stocks, bond accounts and other certificates) into it, your living trust owns the property – – not you. This transfer of property into the living trust allows you to avoid probate on the property you transferred into the trust. REMEMBER – – this does not mean that you no longer have control of your assets! Upon your death, the person who you chose to be your successor trustee will manage the distribution of your assets according to the terms of your living trust.
2. A living trust allows for quick distribution of your assets at your death.
Upon your death, your “successor trustee” is given power to quickly and efficiently distribute your assets to your heirs, as specified in your living trust. The distribution of assets typically takes only a couple of weeks; instead of nine (9) months to a year or two (in California) that it would take if you only had a Will and thus, subject your assets to probate court. REMEMBER – – all assets that are subject to only a Will (and not a trust) are usually frozen during this time, meaning nothing can be sold or distributed without the court and/or executor approval. That’s why a living trust is so powerful!
3. A living trust gives you peace of mind.
A living trust can give you the peace of mind that your exact wishes will be followed upon your death. A living trust can also provide that your family shall be provided for quickly. If you have children or grandchildren, a living trust can prevent court control of minors’ inheritances and ensure your assets remain in your living trust until you want your beneficiaries to inherit them. For example, you may consider instructing your successor trustee to distribute assets to minors in a three-stage process, such as: 1/3 of the assets at age 21, 1/3 of the assets at age 25, and 1/3 of the assets at age 30.
4. A living trust keeps your wishes private.
Unlike a Last Will and Testament (aka a “Will”), a living trust is not part of the public record. In fact, do not listen to people who says you must “file your Living Trust with the County Recorder.” Once you file any document with the County Recorder, it becomes a part of the public record! Accordingly, any and all transactions involved with a living trust, including distributions, are private both before and after your death.
5. A living trust helps you keep control of your affairs if you become incapacitated.
If you become incapacitated, the person you personally chose to be your successor trustee will manage your affairs without court intervention during your incapacity. In the event you regain competency/capacity, are can reassert your management over your trust – – or, in the unlikely event that you are required to dispute your incapacity/incompentcy and prevail – – you can retain control of your affairs by revoking the trust.
6. A living trust may save on federal estate taxes.
If you are a single person with substantial assets, a living trust may also reduce federal estate taxes. If you are married, a living trust can be especially effective in reducing or avoiding estate taxes.
As of 2015, the federal estate tax exemption increased to $5.43 million per person, or, $10.86 million per couple. In 2016, the federal estate tax will increase to $5.45 million per person, or, $10.9 million per couple. In short, a living trust can help a person (or couple) fully utilize their estate tax exemptions to either reduce or avoid federal estate taxes.
Need Something Different?
What if you don’t need an entire trust package? What if you just need to make a change to a certain document?
We are happy to provide you with any Amendment, or Restatement, and will happily assist you with transferring your assets into your current living trust. We are also pleased to provide you with any missing documents, or, documents you wish to update, such as a “Power of Attorney,” or a “Pour-Over Will,” in addition other documents such as “special assignments” for you or your business.