Nearly 60% of Americans haven’t made arrangements should the unthinkable occur. Yet, a growing number of people have become interested in estate planning since the start of the pandemic. With the current state of your affairs, what would happen to your estate if something happened to you? Fortunately, you can decide. Keep reading Our “Living Trust: An In-Depth Guide” and How they can be beneficial for you.
What Is a Living Trust?
With the emergence of COVID-19, more people have started to recognize the importance of managing their affairs. A living trust is a legal entity. You can use it to distribute property to people and organizations after your passing.
First, however, you must establish your trust. Then, you must fund it. In other words, you must transfer your holdings into the trust.
You can put many things into a living trust, as long as they have value. These kinds of assets might include real estate and investment accounts.
The Power of Living Trusts
The documents that govern your estate are among the most important things you’ll ever create. They enable you to care for your loved ones. Your estate documents also enable you to give back to your favorite charities.
Most importantly, your estate documents empower you to control your legacy.
In some states, experts recommend using a living trust instead of a will. In the event of your passing, a living trust doesn’t need to go through probate.
Conversely, a will does go through probate. Unfortunately, the probate process can prove expensive, time-consuming, and stressful in some states.
Let’s have a closer look at living trusts and how they work.
Types of Living Trusts
There are two kinds of living trusts. You can have either a revocable trust or an irrevocable trust.
A revocable living trust is flexible. You can modify it or cancel it at any point during your lifetime. Conversely, it’s more challenging to change an irrevocable trust once you’ve created one.
As you can imagine, a revocable living trust is more popular for estate planning among consumers. In some cases, however, an individual may choose an irrevocable living trust, for example, to protect their assets from liens.
Benefits and Drawbacks of Living Trusts
Creating a living trust has several drawbacks. For example, it takes time and considerable work to set one up.
However, a living trust also offers benefits. A significant advantage of a living trust is that it doesn’t have to go through the probate process.
You can readily hand it over to your heirs for this reason. A living trust can save your loved one’s time, money, and a considerable amount of stress.
Do I Still Need a Will if I Have a Living Trust?
You might wonder, “If I have a living trust, do I still need a will?” The answer is, “Absolutely.”
Even with a living trust, it’s a good idea to have a will. A will can help you account for assets that aren’t covered with your trust.
For instance, you might use your will to name guardians for your children or express wishes for your funeral. You can also leave instructions for any property that isn’t included in your trust using a will.
Often, people who have a living trust also create a “pour-over will.” This kind of will functions as a safety net. It captures any property that didn’t transfer to your trust while alive.
Let’s have a closer look at the differences between a living trust and a will.
Living Trust vs. Will
Both living trusts and last will and testaments are legal documents. They explain how you want your assets distributed after your passing. Again, you can also use your will to name a guardian for your children and pets.
When you pass, your estate will go through probate. The court will oversee the distribution of your estate.
Here’s where the difference between wills and trusts starts to emerge.
Weighing the Differences
Usually, a will requires less time and maintenance compared to a trust. However, with a trust, assets don’t have to go through probate.
Conversely, assets in wills must go through probate. For many, skipping the probate process is an attractive feature of trusts.
Trust proceedings are private. Will proceedings, however, are not.
Another big difference between wills and trusts is that you’d establish a trust during your lifetime. Alternatively, a will won’t go into effect until you pass.
Living Trust Cost
On average, you may pay an attorney $1,000 to $1,500 to establish an individual trust. Meanwhile, a couple might pay $1,200 to $1,500 for the same service.
It helps to understand that legal fees can vary by location. As a result, it can cost much more to establish a trust or a little less.
The cost of hiring counsel to draft a will is much lower. Typically, an individual would pay an attorney $200 to $400 for a will. Meanwhile, a couple might pay a lawyer $300 to $500 for this service.
If you have straightforward estate needs, you can save money by using an online service to create a will. This DIY approach can save a considerable about of money.
However, it’s essential to exercise caution when creating your own will in this way. Without review by an experienced attorney, you won’t know for sure if you’ve drafted the best will possible.
Working with Living Trust Attorneys
It’s a good idea to hire an attorney to prepare a living trust. An attorney will ensure to create the trust properly.
They’ll make sure that all your wishes get carried out. An attorney will also ensure that your trust fulfills all legal requirements. But most importantly, they’ll ensure that the trust provides maximum benefits.
It’s unwise to create a living trust on your own. Instead, you can be confident your trust is completed correctly by hiring an attorney.
Getting Started: Making Decisions
To start the process of creating a living trust, you must first decide whether you want a shared trust or individual trust. For example, if you’re married or in a domestic relationship, you may want to consider a shared trust.
You must also decide what assets to leave in the trust who will inherit the trust. Ideally, you should choose big-ticket items that would otherwise go through the probate process.
For most people, this is the easiest part of the process. Your family members, friends, and favorite charitable organizations will likely come to mind quickly.
If you’re wondering whether there are tax benefits to a living trust, the answer is, “No.” This is because you still maintain total control over the living trust and must pay taxes on assets in the trust accordingly.
Choosing a Successor
Also, you must name someone as a “successor trustee.” This individual will distribute trust assets to beneficiaries after you’ve passed.
Often, someone will choose an adult child to fulfill this role. Alternatively, they may choose a relative or close friend.
If you desire, it’s legal for you to name a trust beneficiary as your successor trustee. In other words, someone who’ll receive benefits after your passing can serve in this role.
Remember, however, to discuss this assignment with whomever you have in mind. It’s essential to make sure that they’re willing to take on this crucial responsibility.
Considering Children in a Living Trust
Suppose some young adults or children might inherit your trust property. In that case, you should choose an adult who’ll manage the property that they’ll inherit.
In this instance, you’d give that person authority over your children’s property. You can make them the property guardian or custodian.
This role falls under a law called the Uniform Transfers to Minors Act. In this capacity, that individual will serve as a trustee.
Assessing Your Assets
Once you’ve considered these points, you can start to make a list of your assets. As you create your list, make sure to include everything you own.
You must make a list of all your tangible items. These items can include your car, house, and jewelry.
Now, list your intangible items. These items may include bonds, stocks, and life insurance policies.
Once you’ve completed your list, you’ll have a clear picture of your estate. Now, you can begin to decide how you’d like to distribute your estate if you were to pass.
Assets to Exclude
Not everything should go into your living trust. For example, you should exclude certain items, such as:
• Recreational vehicles
These items appreciate. Also, people buy and sell them often. As a result, it can prove inconvenient to track these items in your living trust continually.
You can also exclude non-probate assets from your living trust. These kinds of items might include life insurance policies and retirement accounts.
With these items, you can establish your beneficiaries, and they’ll pass to your heirs without going through probate. As a result, there’s no need to include them in your trust.
Gathering Asset Paperwork
Another step in the trust creation process is as vital as creating your list of assets. You must gather all accompanying paperwork for your assets. This kind of paperwork might include:
• Life insurance policies
• Stock certificates
You must make these documents readily available for the attorney who’s preparing your living trust.
By gathering these documents ahead of time, you can get your attorney off to a running start. The attorney will need them to transfer your assets to your living trust.
Establishing Your Revocable Living Trust
With a revocable living trust, you can make changes to it as long as you have mental capacity. You can also revoke it entirely at any time during your life.
You may need to make minor changes to your revocable trust at some point. In that case, you can use a trust amendment document. You’d include the amendment with your original Declaration of Trust.
Instead, however, you may need to make a lot of revisions to your trust. In that case, you’ll want to consider rewriting your Declaration of Trust. This practice is called a trust restatement.
Finally, you may want to revoke a revocable living trust. Before you can do so, you must transfer all of your assets out of the trust.
You should also file a legal document called a Revocation of Trust. It states that you’re revoking your trust. You can usually get this document from a local probate court.
You can also hire an attorney to draft a revocation of trust for you. In either case, you must sign and date the document before it’s valid.
Preparing the Living Trust
If you only need a simple probate-avoidance trust, you can create a simple living trust document. Again, it’s best to hire a lawyer to create your Declaration of Trust if you can.
If you must, however, you can do it yourself. Before doing so, make sure you’re well-informed.
If you have a complex range of assets, you’ll need more than a simple probate-avoidance trust. You’ll most certainly want to work with an attorney to draw up a Declaration of Trust for your specific needs.
After having your trust created, make sure to sign it in front of a notary public. If you’re in a marriage or domestic relationship, you should both sign it in front of the notary public.
Finalizing Your Trust
The final step in creating your trust is transferring the property’s title to yourself as a trustee. This part of the process is critical. Unfortunately, many people forget to take this step.
You must hold title in your trust property before the trust becomes effective.
Imagine that someone named Jim Brown wants to hold real estate in their trust. They must prepare a new deed and transfer that property to “Jim Brown, trustee of the Jim Brown Revocable Living Trust, dated [insert date here].
Learn More about Smart Financial Management
Hopefully, our in-depth guide about writing a living trust helps you better prepare to manage your estate. Still, there’s so much more you can learn.
Please feel free to browse our Finance section to learn more about the best ways to manage your assets.