No matter how much you own, you owe it to yourself and your family to plan ahead now for the distribution of your assets upon your death. With good estate planning, you can minimize the costs and expenses, including taxes, which often occur with the distribution of an estate. There are different methods you can use to transfer assets to your beneficiaries. Some people use joint tenancy, others use wills, while others make use of an instrument called a living trust or a revocable trust.
What Is A Living Trust? A living trust is a legal document that you create with the help of your attorney. In the trust document, you designate one or more trustee(s) and a beneficiary. In a living trust, you are usually the beneficiary and the trustee. However, some people prefer to appoint another person or institution to serve as trustee. In any case, the choice is yours to make based on your own circumstances. In the trust document, you designate a successor trustee to take over in case of your death or incapacity; you also designate who your heirs will be. Your trust should also include a provision that allows you to amend or revoke the trust at any time. With these provisions in place, you will have full enjoyment and use of your property and the peace of mind of knowing that you legally arranged to pass your assets to your heirs free of probate.
What Are The Advantages? A living trust is a very useful and cost-effective device for transferring property from one generation to the next. A revocable living trust offers you flexibility while allowing you to maintain the control of your assets. There are other advantages to you through a living trust:
Avoiding Probate. A significant advantage of your living trust is avoiding the costs and delays of probate. This can save 5% to 7% of your estate value.
Estate Taxes. There are estate tax advantages. Any property owned by you at the time of your death (property in or out of the trust) is subject to federal estate tax. This includes any life insurance proceeds that will be payable at the time of death. For a married couple, through the use of a properly managed drafted living trust, up to $1,200,000 may be passed to your heirs free of federal estate tax. Without a trust, a married couple could only pass $600,000 free of tax, resulting in a tax of approximately $235,000.
Privacy. If your estate is probated, your will and an account of all your assets will become part of the public record. Under most circumstances, a trust is a private document and is not subject to public scrutiny. Because a trust can protect your estate from the prying eyes of a creditor, beneficiary or even the press, many people choose a living trust for their estate planning needs.
Incapacity. As an individual grows older, the possibility of senility, incapacity resulting from a stroke, or some other disability that would leave a person unable to manage their affairs becomes a real danger. A living trust can provide for the proper and safe management of your assets under these circumstances.
Estate planning is an issue we must all face sooner or later. A properly prepared estate plan can protect your heirs and provide you with a peace of mind of knowing that decisions have already been made in case of an emergency.