There are a few key benefits of a living trust including estate planning flexibility and benefits for the living. Let's see if a living trust is the right option for you.
Living trusts are one of the most effective and valuable tools in an estate planner’s arsenal. In contrast to a last will and testament, a living trust is called into action on the day it is established rather than after the grantor’s death. And where a will is a witnessed and notarized series of wishes and instructions, a trust is a named legal entity managed by the grantor and a successor trustee.
Trusts are much more flexible and capable than wills when it comes to managing your finances and assets. But does that make them the end-all-be-all of estate planning tools? Let us take a closer look at some of the most generally useful benefits of a living trust and whether they might apply to you.
When and why are trusts put to use? Under most circumstances, estates are large enough to consider a more guided approach to the management and distribution of assets and property. Living trusts are legal entities defined and established by a trust document and an asset list that outlines the contents of said trust.
Each item noted in the asset list is funded into the trust by the asset’s respective owner. Depending on the trust structure, the asset’s owner may have little to no control over an asset after it has been funded into the trust.
This has distinct advantages and disadvantages, depending on a person’s circumstances and perspective. Estates that are too large to take advantage of certain benefits might look for ways to cut down on size, without incurring a hefty gift tax, for example.
This flexibility and utility make the trust an important tool to work with whenever an estate reaches a point where postmortem taxes become a serious consideration.
Trusts are also one of the best ways to control when and how assets are distributed, even after death. Unlike with a will, there is no obligatory probate process for a trust, and trusts can continue to exist for years after a grantor has died, provided that is what they intended.
This allows financially savvy trustees to continue to manage and invest the contents of the trust for the sake of the trust’s beneficiaries, paying out income over the years, before eventually distributing the principal (minus costs, such as the trustee’s compensatory fees) either after a set period has passed, or upon some type of beneficiary milestone (finishing college, first paycheck, a birthday, etc.)
Living trusts are named such because they are put into effect while the grantor is still alive. A trust that only goes into effect once the grantor is dead is called a testamentary trust. Because living trusts take effect while a grantor lives, they can also provide several potential benefits to the grantor.
The most direct benefit is tax-related. A living trust set up to be irrevocable cannot be amended but allows for a significant degree of separation between the trust and its grantor. This has distinct tax advantages when it comes to calculating income paid out by the trust or avoiding the higher end of the tax bracket while preserving family wealth.
Blind trusts are another trust structured mainly for the benefit of the grantor. When creating a blind trust, a grantor can funnel their assets and investments into a trust they cannot access and cannot review.
A trustee is in charge of managing these assets and investments and is obliged not to inform the grantor of the trust’s status. This way, the grantor can avoid a conflict of interest without giving up their wealth.
Preparing for the probate process is an important part of any estate plan. When a person dies, everything they own must be distributed among the living. Some things can be distributed automatically, such as life insurance payouts, retirement account remainders, bank accounts or assets with designated beneficiaries, and trusts.
But everything else must pass through probate, during which a judge appoints a closed loved one or professional as an administrator of the estate and grants them the power to manage and distribute the decedent’s estate, either as per their will and testament, or as per state law if the decedent died intestate. This process can be lengthy and costly, depending on the size and scope of the estate. Estates further complicate it with assets in multiple states or countries.
Trusts can help remove expensive and difficult-to-manage assets from the probate process and reduce the size of the estate, which can impact how long it takes for the estate to be probated.
Another disadvantage of allowing your entire estate to pass through probate is that the process is on the public record.
This means that a portion of your estate will be easily accessible to anyone interested in your financial history upon death. Trusts can help protect your privacy in this instance, especially if you are a public figure or a celebrity.
Trusts can be managed for years and years after a grantor’s passing. This makes them one of the most effective ways to manage wealth for a loved one who might not be able to manage it themselves.
From adults with special needs to spendthrift children, sometimes, the people we love aren’t wise when it comes to carefully managing and spending money.
By providing a set income for them through the help of a trustee, you can be safe in the knowledge that they will have the financial support they need even after you are gone.
Trusts are also an effective way to avoid the third-generation curse – but it should be considered supplementary to the most important prophylactic tool to preventing lost wealth: talking to your kids about money.
We have only gone over some of the benefits of utilizing a living trust to manage your estate. There are many more, including asset protection. But does that mean a trust is always the answer for any and all estate problems? Absolutely not.
In fact, many estates shouldn’t bother with implementing trusts, because they can be expensive to maintain without good reason. Always be sure to discuss the wisdom and financial viability of a trust or any other estate planning strategy with your tax and estate professional or financial advisor.
Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
Our goal is to make your case as easy as possible for you. Hiring a lawyer can be a daunting task, but it doesn’t have to be. From the moment you contact our firm, through the final resolution of your case, our goal is to make the process easy and understandable. We cannot change the fact that probate is a long and complicated process, but through our Werner Law Firm Difference, we strive to go out of our way to keep you informed of your case through every step of the way. We are constantly refining our processes and procedures for a more streamlined and calm client experience. Our goal is to have you feel like a burden was lifted from your shoulders, and that we made the whole process an easy one
If you're dealing with a legal matter, we urge you to schedule a free initial appointment today and join the many satisfied clients who have contacted Werner Law Firm.
23 Corporate Plaza Dr., Suite 150
Newport Beach, California 92660