30th Jun 2017
When people start thinking about estate planning, they essentially think of what will happen to their assets and loved ones at the time of their death. As such, the majority of people will compose a last will and testament and leave it at that. However, it is a good idea to also create a living trust. A living trust allows you to have control for your assets while you are still alive. It also protects you in the event that you should become incapacitated and unable to make a sound decision.
A living trust is a legal and binding document in which you, the grantor, determines a trustee for your assets. The trustee will then handle your assets in the event of your death, or should you become incapacitated. A living trust is beneficial in that it prevents your personal and financial records from becoming public property after your death. Also, a living trust is not subject to probate.
A revocable living trust allows you to make changes while with an irrevocable living trust, you surrender the title of the assets to your legally appointed trustee. Most people opt for a revocable living trust, as it allows them to have control of their assets until the time of their death or in the event that they become incapable of making a reasonable decision. To determine which type of trust is best for you, you need to determine how much control you wish to retain over your assets.
Types of Trusts
- Generation-Skipping Trust (GST): This is recommended for those who wish to leave their assets to their grandchildren as opposed to their offspring.
- Irrevocable Life Insurance Trust (ILIT): An irrevocable life insurance trust is used for estate tax filing. You would make financial contributions to the trust which are then used to take out a life insurance policy in your name. In the event of your death, the benefits are then payable to the trust. This will then provide your beneficiaries with cash tax-free to help them make the estate tax requirements.
- Charitable Lead Trust (CLT): A charitable lead trust allows you to provide income to a charity appointed in your trust for a set period of time. After that time, the principal then be distributed to the beneficiary. They will then receive the property free from estate taxes.
- Charitable Remainder Trust (CRT) A charitable remainder trust provides you with the ability to receive both a tax deduction and income simultaneously for a set amount of time. The assets will then be donated to the designated charity. The trustee will then use donated cash to establish an annuity payable to your beneficiary for a predetermined period of time. After this time, any remaining assets will then belong to the charity.
- Qualified Personal Residence Trust (QPRT): A qualified personal residence trust gives you the ability to remove your personal residence from your estate at a discounted rate. You then are able to use the home for a set period. After that time, the ownership is then rendered to the trustee. Any incurred gift taxes will be discounted during this time.
Advantages of a Living Trust
- Provides security for your trustee and beneficiaries
- Avoids the probate process, estate taxes and income taxes
- Provides for minors and those with special needs
- Allow you to maintain privacy of your personal and financial records
- Difficult to contest
- Sets a plan in place in the event that you become incapacitated
- Prevents the court from controlling the assets of your minor children
How to Determine How Much Control You Want to Maintain:
You should ask yourself the following questions if you are considering a living trust
- Is the purpose of your trust to provide for a minor or disabled loved one?
- Do your work in a field with a high risk of being sued?
- Are you establishing a trust solely to avoid the probate process or taxes?
- What are your future goals for your assets?
- What is your current financial situation?
Take these factors in mind when you are decided if you wish to establish a living trust. Remember, you only have power to make changes to the trust if you opt for a revocable trust.
When it comes time to set up a living trust, contact Tompkins Law at 1-714-385-0044. We have years of experience with estate planning and living trusts. We can help you determine which course is best for your personal and financial situation.
Planning for the future of your loved ones can be quite burdensome, so why not let us help you with the process? You can trust us to guide you in the right direction. Call us today for a free expert consultation.