If you’re like a lot of people, you’ve probably spent more time planning your next vacation than deciding how to transfer your estate. But without proper estate planning, much of what you worked for during your lifetime could be distributed to unintended beneficiaries or lost to unnecessary complications.
A revocable living trust is a popular estate planning tool that lets you control how your property is handled during your life and after death. It also helps avoid probate and transfers your property quickly and privately.
The trust is a legal document that partially replaces a will. You transfer assets, such as your house, bank accounts, or stocks, into the trust’s name. A trustee, usually you or someone you have confidence in, manages the property for the benefit of you or your family. It’s called a living trust because it’s created when you are alive. And since it’s revocable, you can change or cancel the trust at any time before your death.
Benefits and Limitations of a Living Trusts
Creating a trust is a personal decision based on your own unique circumstances. A living trust has many benefits, but it may not do everything you need. Let’s look at what a revocable living trust can and can’t do for you:
Benefits of a Living Trust
- Provide for You During Incapacity: A properly executed living trust can take care of you if you become unable to care for yourself. This avoids the delay or a court-ordered guardianship. This feature highlights the importance of adequately funding your trust when its set up. Be sure to name an alternate trustee to manage the trust if you become unable to care for yourself.
- Avoid Probate: Probate is a legal process that transfers property after a person’s death. By transferring legal title to the trust, the property is no longer part of your estate. It’s already been transferred.
- Protect Privacy: There’s typically no public record required, unlike with a will. Be aware, if property is placed in the trust after your death, then there may appear in a public record.
- Greater Control: If you want to leave assets to a child or someone who may have trouble managing money, a living trust gives you control over the manner and timing of payments. For example, you can leave money to your 12-year-old grand-daughter to pay for college or to help with a down-payment on her first house.
- Easy to Create and Change: For most simple estates, a living trust has fewer legal formalities than a will, making it easier to create and change. Each state controls the rules for living trusts, so research your local trust laws.
- Hold Property from Other States: If you own property in other states, a living trust will protect your heirs from needing to administer out-of-state probate procedures.
Limitations of a Living Trust
- Immediate Tax Benefit: Since you retain the right to use and enjoy the property, in the eyes of tax authorities, it remains your taxable property. If you receive income from the trust, you must report the income on your tax return.
- Cost Savings: Revocable Living trusts can be expensive to set up, plus there are annual maintenance fees. There may be some cost savings by eliminating probate costs and other incidental fees.
- No Creditor Protection: You create a trust to keep control over the distribution of your property. Although some trusts can protect your assets from creditors, a revocable living trust cannot. Since this is a revocable trust, you can terminate it at will. So a creditor can force the termination to get the assets.
Start on Your Living Trust Now
In some circumstances, it may be possible for you draft a revocable trust on your own. Make a document stating the trust is created to hold property for the benefit of yourself or someone you specify. You can name yourself as the trustee, but be sure to select an alternate trustee.
Next, list the assets being placed in the trust. Remember, the trust becomes the owner of the property you transfer. That’s why you must change the name on the title to that of the trust. Rest assured, you keep the right to manage your property in a living trust, even if you’re not the trustee. You have the right to change the terms of the trust, remove the trustee, or the property, at any time.
When you’re finished writing your trust, sign it and have it notarized. You can fund your trust using a deed or standard transfer document to transfer the property into the trustee’s name, per the trust’s terms. It’s important to understand the laws in your state to properly form and fund your trust. Errors can make your trust invalid and without any legal effect. If you have any concerns, consult with a lawyer or other estate planning professional.
Free Consultation with an Estate Planning Lawyer
If you are here, you may need help with an estate plan. If so, please call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506