If you have a large estate, a living trust might be exactly what the doctor ordered. Living trusts protect your assets for your beneficiaries in a way that other trust vehicles do not. These trusts provide a hedge of protection from debt holders and from the IRS because they allow you to continue contributing to the trust until you pass away, protecting your assets from being seized in the event that you become fiscally insolvent.
How do living trusts work?
Living trusts are administered by a trustee you select – usually a probate attorney – and are typically implemented upon death. The trustee manages the trust while you are alive and who oversees the distribution after you have passed on.
What’s the benefit of a living trust?
When you place your estate holdings in a living trust, all of the money and property allocated to the trust becomes part of your estate, and cannot be touched by debt collectors or the IRS upon death. Without a living trust, everything in your estate would be sold to pay off your debt first, before being passed on to your family.
These types of trusts also help you to avoid probate and executor’s fees upon death. And while it remains impossible to avoid all estate fees using a living trust, not having one is undoubtedly more costly.
Can living trusts be implemented before death?
Living trusts can also be activated and disbursed in the event that you suffer from a long-term disability or become incapacitated, meaning that your beneficiaries have the financial resources to care for you, if needed.
Alternatives to a living trust
If you do not have a large estate or do not have multiple properties, a living trust might be more trouble than it is worth. Depending on the laws in your state, it might be easer (and cheaper) to will all of your assets and holdings to a spouse or beneficiary with a right of survivorship. If you pass away before you spouse does, your spouse will not have to pay inheritance tax upon your death, simplifying probate.
While living trusts are beneficial for many people on the financial side of things, they do not negate the importance of a will and will not have any bearing on what happens to minor children. Living trusts do not appoint a legal guardian in the event of your death, either. However, the trust will act as a financial resource for your offspring, giving legal guardians the financial help required in raising children today. If you want to know more about the ins and outs of living trusts and whether or not a living trust is the right solution for your family, visit a probate attorney for a consultation.