A “living trust” is simply a trust you create while you’re alive, rather than one that is created at your death. Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.
The following discussion concerns different categories of assets and whether transfer into a living trust makes sense. First up: real estate. If you are like most people, the most valuable thing you own is real estate. Many people create a living trust just to make sure a house does not go through probate. Substantial probate costs can be saved by transferring real estate through a living trust which is why so many people are interested in creating living trusts for the property they own.
Another good place for a living trust is where a small business is involved. Tying up an ongoing small business during probate can be disastrous. Probate would mean that your executor has to run the business for months while a court supervises daily decisions. Using a living trust to transfer business interests to beneficiaries quickly after your death is essential if you want them to take over the business and keep it running.
There are other things that don’t work well in the context of a living trust. For instance, if you do not expect to own an item of property at your death, there is really no compelling reason to transfer it to your living trust. Property that you intend to quickly flip or that you buy and sell repeatedly are good examples of something that can be cumbersome when placed in a living trust. It’s good to remember that the probate process you want to avoid does not happen until after your death.
Individual retirement accounts and 401(k)s cannot be assigned to a trust; they instead require an individual owner. However, you can name a trust as a beneficiary for your retirement accounts. Something else that cannot be held by a living trust is cash. You can, however, transfer ownership of a cash account, in the form of a savings account, money market account, or certificate of deposit, to your living trust.
It’s important to know that you can add property to your living trust at any time. And because you’ll also be the trustee, you can always sell or give away property in the trust, or take it out of the living trust and put it back in your name as an individual.
An experienced Huntsville estate planning attorney can help with the designing and creation of a living trust. The local expertise of the estate planning attorneys at Martinson & Beason, P.C. will help you craft a sound plan to secure your family’s future.
For more information on our Estate Planning services see our Huntsville Probate and Estate Planning Video.
Source: “What Is a Living Trust,” published at Dummies.com.