One of the reasons a living trust is popular is because it can help you to avoid probate while providing a reasonable degree of asset protection. Clients regularly have concerns about living trusts and commonly ask, “Do I have to forfeit control of my assets?” The answer is no – not at all. One of the most favorable aspects of a living trust is the ability to retain control of your assets while providing directions to your loved ones about transferring your estate upon your death.
The purposes of trusts in general
One of the basic purposes of a trust is to avoid probate proceedings, a court process that is usually lengthy and expensive. Each state has its own laws, which typically require a deceased person’s property to go through probate if there is no proper estate plan in place. Another basic purpose of trusts is to appoint those persons responsible for making your financial and medical decisions for you in the event you become incapacitated. Without having the proper documentation in place, your loved ones may be required to petition a court to appoint a guardian or conservator to handle your affairs. One of the greatest benefits a living trust can provide is the ability to protect your assets for your loved ones, once you have passed away. If you are considering whether you want to create a living trust, you should be aware of both the advantages and disadvantages of such a trust.
What is a Living Trust exactly?
A “living trust” is basically a type of trust created to become effective while you are still alive, as opposed to upon your death. As with all other types of trusts, a trust is an agreement where the property transferred to the trust is held and managed by a trustee, with directions as to how your estate should be transferred to your beneficiaries upon your death.
Some basic advantages of a living trust
First, the ability to avoid probate is one obvious advantage of a living trust. It can save your loved ones both time and money in the long run, as well as help you to avoid potential complications, when distributing assets after your death. There are also some very valuable tax advantages connected with a trust. A living trust can also help to reduce the amount of estate taxes imposed on your estate, while allowing for income tax planning opportunities. By distributing assets in trust for your beneficiaries, you can provide the greatest ease in administering your estate, and you can reduce the amount of estate taxes your beneficiaries would otherwise need to consider on their own. In Nevada, we can continue to pass your assets down generation after generation estate-tax-free for up to 365 years. Privacy is another benefit; the terms of your trust remain private, unlike the public nature of the probate process.
Living trusts offer legal protection
There are certain legal protections provided by trusts. A living trust is a written legal document, which means it will always be enforceable by the courts. If there are any challenges to the asset transfers made after your death, the terms of the trust document will provide the best evidence of your intentions with regard to your property.
Who actually controls the assets in a living trust?
You are allowed to identify anyone you choose to be your trustee, including yourself. That would mean you can retain complete control of your assets during your lifetime. Therefore, a significant benefit of a revocable trust is that you may continue to buy, sell, encumber, and refinance assets just as you did before the trust was established. You also have the ability to remove assets from the trust whenever you desire. In other words, you maintain complete control of your property. As long as you are competent to handle your own financial affairs, you can name yourself as trustee of your living trust. Indeed, this is most commonly what people choose to do. If you are married, you can also name your spouse as co-trustee, if you wish. Upon your incapacity or death, the living trust will appoint a successor trustee to continue to manage your assets without court involvement. Once assets are transferred to your beneficiaries, your living trust may allow them to control their own trust share as trustee. If you have concerns about your beneficiaries’ ability to manage their own estate, you may consider appointing a third-party trustee to manage those assets on their behalf to ensure the maximum protection for your assets.
The disadvantages of a living trust
Although there are many advantages to creating a living trust, there are also disadvantages that you should be aware of before making a decision. One downside is that, living trusts can be more limited in coverage than a Will would be. A living trust typically refers only to specifically identified property that has been transferred into the trust. For this reason, the terms of a living trust need to be as detailed as possible when describing those assets.
You may need a durable power of attorney as well
There is the possibility that you may need to create a durable power of attorney, along with the living trust. While you typically name yourself as the original trustee, in order to maintain control over the trust while you are alive your successor trustee may not have the authority to manage any additional property that was not included in the living trust. For this reason, you will likely need a power of attorney, as well.
Don’t forget about your health care documents
For your estate plan to be well rounded, you should also consider having all of your health care documents prepared as a part of your estate plan. These would include your Durable Power of Attorney for Health Care Decisions (a.k.a. your Health Care Power of Attorney), Living Will, and HIPAA Authorization forms.
If you have questions regarding a living trust, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.