Give Your Family the Living Trust Gift That Keeps on Giving - Werner Law Firm

Give Your Family the Living Trust Gift That Keeps on Giving

While estate and living trust gifting is often put off because of the uncomfortable topic of death, it is one of the most significant gifts you will ever leave behind.

 

Estate planning is about more than just protecting your own legacy – through a well-constructed and expertly crafted estate plan, you will have the ability to continue to provide structured care for your loved ones long after you have gone. When most people think about estate plans, they think about wills.

However, there is more to an estate plan than simply telling your executor where you would like your assets to go after death. Through trusts, you can exercise a much greater degree of control over your possessions and property, to the point of controlling not only who gets what, but when they get it, at what rate, and in what form.

By working with an experienced estate planning professional, you can ensure that your good fortune will continue to benefit your loved ones, should anything happen to you. While it is clear that you would want to bequeath a portion of your estate to your partner, you may hesitate to give your underage children a substantial amount.

Even though they cannot legally access their inheritance until they are 18, there is a way to ensure that they are given control over their birthright at the age of maturity, rather than the age of majority.

 

What Is a Living Trust?

A living trust is a legal instrument designed to allow individuals to leave a portion of their wealth to a beneficiary as per their instructions, through the mediation of someone trustworthy that you choose. Trusts come in different forms, some being revocable (meaning that they can be ended or amended while you, the grantor, are alive), and others being irrevocable (meaning they are functionally permanent, save for certain exceptions).

Trusts are different from wills in that:

    • Trusts exempt all assets funded into them from entering the probate process.
    • Trusts can, if designed to do so, can provide asset protection from creditors.
    • Trusts provide a much greater degree of control over how they are bequeathed to beneficiaries.
    • Trusts cannot determine guardianship of dependents.
    • Trusts can be maintained for many years after your death, rather than always being resolved through the probate process.
    • Trusts can maintain your privacy by ensuring that anything funded into them does not become a matter of public record (probate is public).

Revocable living trusts are commonly offered to individuals who seek a greater set of options beyond simply assigning a portion of their estate to their loved ones after they pass. Some individuals simply need a greater degree of control – for example, to ensure that their special needs child is best taken care of, and supplied with a financial parachute, or to ensure that a minor child receives their share of the estate once they graduate college, or hit 30, etc.

Trusts can also be used to bequest funds and property gradually, over time – a so-called spendthrift trust, for example, is specifically designed to ensure that children who have been financially irresponsible in the past only receive a portion of their inheritance at a time, for years to come, rather than receiving all of it at once. Living trusts are drafted while the grantor is alive, but only go into effect once they pass away or are mentally incapacitated. The grantor then rescinds control over the trust to a trustee, who oversees the management and care of the assets and property funded into the trust.

While the grantor is alive, they maintain limited control over the assets funded into their trust – these assets are technically no longer theirs, but part of the trust. Irrevocable living trusts further reduce control, to the point that certain assets can no longer be used by the grantor, as irrevocable living trusts are usually designed to wholly separate the grantor from the property without outright gifting it, for a variety of reasons.

 

Trusts and Probate

One important thing to note with a living trust is it’s ability to allow you to bypass the probate process. If you only have a simple will, your beneficiaries would generally have to go through probate court to inherit your assets. This is especially true if you own a home. Setting up a living trust allows your heirs to inherit your home without having to go through probate court. This is critical, as probate court regularly takes about a year to go through, and can end up costing anywhere between $10,000 – $30,000 depending on the value of your assets! Not only would your heirs have to wait over a year to inherit, but they would have to pay a lot of money to do so.

Anything that is not in a trust when you pass away can be posthumously funded into one through a pour-over will. The best way to think of a trust is to think of a literal box, key, and attendant. You add things into the box, add instructions to the box, lock it, and hand the key over to a trusted individual.

When you pass away, that individual opens the box and does with its contents as per the instructions you left behind. Trusts are very flexible, insofar that they can be specifically utilized to care for pets, protect your assets, care for your children, provide a financial cushion for a dependent with special needs, or even give to charity.

 

Living Trust Gifting (While Living and Long After You’re Gone)

Living trusts serve an incredible range of different purposes, but they need to be funded properly.

When picking a trustee, you can decide between a person you trust personally, or a professional with a fiduciary responsibility to maintain and manage the assets within the trust, and act within the best interests of your beneficiaries. From there, it is important to work closely with an estate planning professional to create and fund the trust.

Funding the trust can be a lot of busywork, depending on the goal of the trust – to fund a trust, you must detail the contents of the trust within the trust document itself, and then ensure that all assets and properties within the trust are properly retitled and amended to reflect that they are a part of the trust now, rather than your own property.

An estate planning attorney can assist in this process as well, simplifying it greatly. Through a living trust, you can assert as much control over the bequeathing of your assets as you need to.

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