Disinheriting a Child + Other Good Reasons to Get a Living Trust

Not all families are harmonious, and not all estates are simple. When there’s more to your familial quarrels than a little pettiness, then it pays to be more specific and protective when it comes to estate planning.

We all pass away eventually, but without exercising specific control over how your assets are distributed when you’re gone, you risk leaving substantial portions of your fortune to individuals you don’t want to support.

If your estate situation is complicated, wrought with relationship issues, with properties in several states, and more, then a revocable living trust may be a very valuable tool to you. While trusts are often expensive to create and maintain and take time to set up even with professional help, there are plenty of cases where they’re well worth the hassle.

Living trusts are not just ideal for estates with family issues or complex assets. They provide a variety of other benefits, including asset protection from creditors, privacy from the public, and a far greater degree of control over how (and when) your estate should be distributed.

What Makes a Trust an Effective Estate Planning Tool?

A trust is an agreement built between three parties: the trust’s grantor (you, representing your estate and your own interests), the trustee (a partner who would be placed in charge of the contents of the trust once you’ve passed away), and the beneficiary (or several beneficiaries).

Trust documents detail what a trust should do, and how the assets within the trust should be distributed. It’s important to note that trusts come in a large variety of different shapes and forms. The most critical distinction is between a revocable and irrevocable trust.

What Is a Revocable Trust?

As the name suggests, a revocable trust can be amended and revoked. However, there are limitations to what a revocable trust can accomplish. While any and all property funded into a trust is effectively part of the trust, and not technically your property anymore, the contents of a revocable trust still count as part of a grantor’s estate for tax purposes.

While a revocable trust allows you to exercise more control over the distribution of the trust’s assets after your death, it does not remove the assets from your control or ownership (technically) and does not protect them from creditors.

What Is an Irrevocable Trust?

Irrevocable living trusts are much harder to undo, yet they also function very differently. For example, assets placed within an irrevocable living trust are no longer fully under your control. They are effectively protected from creditors and no longer count towards the full value of your estate, allowing you to reduce the size of your estate without forcing you to sell property or gift property beyond your annual gift tax limits.

Both irrevocable and revocable living trusts allow you to pass on property to your loved ones while avoiding the probate process, without the use of a will or other estate planning documents. Trusts can be maintained long after you have passed away, allowing you to set up a fund for your children to help finance them until they become adults, or to hold onto their inheritance until they have matured enough to make use of it.

Other uses for trusts include:

• • Reserving a portion of your estate for charity.
  • Creating a trust for your pet’s continued care.
  • Divvying up an inheritance unequally between heirs.
  • Protecting spendthrift heirs by distributing their inheritance over time.
  • And much more.

Living Trusts and Probate

One of the primary reasons to make use of a living trust is to minimize or even avoid the probate process. While having a much greater degree of control over exactly how your assets should be distributed (including the ability to entirely disinherit kin), the ability to bypass or help substantially speed up the probate process can be invaluable to large and complicated estates, which typically require a much longer amount of time to properly resolve in the probate court.

The probate process begins when the appropriate courts are presented with a death certificate, upon which the recently deceased’s belongings must be categorized and valued by a court-appointed administrator (typically a family member, or someone previously designated by the decedent before death). If the decedent had a will or other similar documents, that will must be legitimized through the probate process before the administrator executes it. If there are other wills or conflicting statements, such disputes will be brought to the court and resolved accordingly.

Once the path forward is made clear (with or without a will), and once all debts have been settled, the contents of the estate are distributed accordingly. All in all, this process usually takes at least a year, and can take much longer in complex cases. The longer it takes, the more expensive it gets, as the probate process typically requires the assistance of a skilled and experienced probate attorney to help navigate complex issues, especially in the case of more complicated estates.

The contents of a living trust entirely bypass probate, by separating the contents of the trust from the rest of the estate and automatically transferring the assets to the beneficiary upon the grantor’s passing (depending on the trust).

Living Trusts and Incapacity

Another one of the reasons why living trusts are an excellent option for very important assets is because they provide flexibility when it comes to distributing assets. Rather than necessitating a grantor’s passing, trusts can be executed once a grantor is rendered permanently incapacitated.

Without a trust, if you are ever unable to care for your financial, personal, or real assets, then often the only option left to a family is to go through the courts to appoint a guardian. This can be humiliating, as it requires that a substantial amount of personal and financial information is made public.

However, living trusts allow you to ensure that, if you ever become incapacitated or declared unable to continue managing your assets, your assets will be taken care of  and managed through the trustee of your trust, provided they are funded into a living trust to begin with.

Trusts can be expensive to set up and maintain, depending on where you set up, and what kind of trust you utilize. However, despite the initial upfront costs, a properly-executed living trust can be well worth it.