A Revocable Living Trust is created during the lifetime of the maker of the trust (called the grantor). After a trust is established, the trust must be funded. This process involves the grantor transferring his or her assets into the trust, or funding the trust. The grantor of a revocable trust can reach the assets of the trust and make modifications at any time. A grantor retains control of all the assets in a revocable trust. By giving up control in an irrevocable trust, the settlor gets certain tax advantages. However, the estate tax threshold is now quite high — $5.43 million for individuals and $10.9 million for married couples.
Here are a few of the advantages a revocable living trust may offer:
One of the biggest benefits of a living trust is avoiding probate. Funding a trust involves transferring title of your assets from your individual name to the name of your trust. The assets now belong to the trust and their distribution will be governed by the terms of the trust. When you die with a will and no trust, your will is admitted to probate, and becomes part of the public record. By passing assets through a living trust, the distribution of your estate remains private.
A Revocable Living Trust also allows the assets of the estate to remain private. In contrast, a will that moves through the probate process is part of the public record. As an added benefit, the living trust also shields the beneficiaries from public scrutiny.
A related benefit of probate avoidance is time and cost efficiency. A will often takes months or even years to administer. There is a six (6) month claim period, so an estate cannot be closed for at least six (6) months. While the will is in probate, your loved ones may have difficulty accessing the assets of the estate. The trust administration process can be much quicker than the traditional probate process. Although trusts may involve more costs up front, they can save money, time and disagreements in the long run.
Living trusts are particularly useful where business ownership interests are involved, or if you own property in multiple states. Because each state’s laws govern property held in that state, your estate may be subject to probate in every state in which you hold property. If you are a business owner, the probate process can involve the executor and court making many decisions for your business for the time that your estate is being probated. By using a living trust to name your successors and beneficiaries, you can ensure a much smoother transition for your business.
A living trust can also be useful in planning for incapacity due to dementia or inability to manage your financial affairs. A living trust helps manage the affairs of the settlor in the event he or she becomes incapacitated and can no longer make decisions for their best interest. When you become unable to manage your personal or financial affairs, the court may appoint a guardian or conservator for you. A living trust allows you to name a successor trustee to handle your affairs.
If you die with a will, and your beneficiaries under the will have reached the age of majority, they have full control of the assets. A trust can prevent a young adult from burning through the assets of an estate. The trust can provide for a beneficiary to receive the interest and income from the trust, but prevent the beneficiary from accessing the principal. These types of trusts are known as spendthrift trusts.
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