Living trusts are excellent estate planning documents with a lot of flexibility and utility. Through a living trust, wealthy individuals with very complicated estates can better control how their wealth is passed on, and ensure that their will – as in, what they want – is properly communicated past their death.
But a living trust is not a magic paper that does everything, and often, it does too much, not being worth the price usually associated with the setup and creation of the document. Deciding whether a living trust is worth it depends a lot on your individual circumstances, the size of the estate, and the complexity of it – from your relationships with family, to how your assets are distributed throughout the country.
We are going to go over some of the ways in which living trusts can help you – and dispel some myths regarding their usefulness.
Living Trusts Do Not Automatically Dodge Taxes
A living trust can help you reduce your estate taxes – sometimes. There are very specific trusts with many considerations and specifications that allow you to reduce some of the tax burden you may place on your beneficiaries after you pass away. A credit shelter trust, which is a form of irrevocable living trust, will essentially allow you to reduce estate taxes – if you are married, and have the right circumstances to allow for said trust to be set up.
There are ways to build trusts that allow you to keep certain assets away from the prying hands of creditors – but very few trusts and estate planning implements will help you dodge the IRS, and most will only let you do so partially. It is important to understand that inheritance will cost you, both in attorney and estate planning fees, and in taxes. But, if you play your cards right and work with the right estate planning professionals, you can reduce the burden on your estate and your children massively. Doing it yourself and potentially committing mistakes, however, could cost you a sizeable portion of your wealth.
Most living trusts do not specialize in minimizing estate taxes. A living trust’s first and foremost goal is to provide your estate a haven from probate, and all the costs associated with it (both time and money). The second goal is to afford you privacy, insofar that your entire estate will not become part of the public record.
However, a trust can be quite flexible. There is a lot it can do for you if you are working with the right people.
Benefits of Living Trusts
Living trusts are designed to allow you to better manage your wealth, before and after you pass away. Their benefits are quite niche at first glance, but with an estate planning professional as your guide, you will find that there are quite a few ways to make living trusts work for you if you know what you want, and what you need.
Trusts Avoid Probate
The first and primary benefit of a living trust is avoiding probate. For larger, more complicated estates, probate can be both a time and money sink. The probate process also involves putting your estate on the public record, jeopardizing your financial privacy.
Trusts Afford Greater Control
Through trusts, you can better manage how your wealth is distributed after you pass away. This includes slowly allocating it to your beneficiaries on a weekly or monthly basis or partitioning different parts of your estate for various individuals and charities.
Trusts Can Provide for Special Needs Children
If you have relatives or children who cannot provide for themselves, a trust ensures that part of your wealth helps take care of them, without ever giving them too much to handle.
Trusts Can Take Care of Pets
Pet trusts are designed to ensure that your pet gets a good home and is financially taken care of, until the end of their life.
Although trusts offer a variety of benefits, there are still things only a will can do – such as designate a guardian for your children, should they be left behind at a young age. Discuss with an attorney how a will can be used to fill any gaps in your estate planning.
Is a Living Trust Right for You?
We have already mentioned that there are cases where a living trust is worth every penny, and cases where you are better off opting for another form of estate planning. You can cover most your bases by sticking to a will, a living will, and power of attorney documents (both financial and medical) – and while a living trust combines some of these, creating and managing a trust is expensive and not worth it for smaller estates.
In California, your biggest consideration is the total value of your estate. If it is below $150,000, then you are better off sticking to a will. A small estate can partially bypass the more arduous parts of the probate process by speeding up the process considerably, through an expedited probate. However, there are other considerations:
- Do you have any pets, special needs children, disabled relatives or favored charities?
- Do you want to keep certain assets away from the reach of lawsuits, irresponsible beneficiaries, or their irresponsible spouses/potential divorces?
- Is your estate especially sizeable, or especially complex?
- Do you have any other reasons to require a trustee to be in-charge of your wealth after passing away, rather than keeping it simple with a will and executor?
As simple as wills may be in comparison to living trusts, a good last will and testament can do you wonders for your estate planning needs. But the emphasis lies on good. Do not rely on online templates or free estate planning services – get yourself the help of a local professional who knows the ins and outs of your state’s probate laws and can help you create a detailed will that is forged specifically around your needs and circumstances.
If a will cannot cut it, you can still reduce the costs of setting up a trust by doing it right and saving your family a mountain of costs due to potentially leaving behind a legal mess. It may cost more upfront than a will, but it can be worth it.