You may have a Will to wish how you want your assets distributed after your demise. But a living trust can achieve the same objectives with more individualized control, while saving your loved ones the time and money that probate requires. A living trust is also a great tool to plan for potential inability. That being said, we almost always recommend a trust in California.
A living trust is a written agreement that is formulated while you are alive and can be modified as long as you are competent and alive. Most of the time, you will be the trustee and the beneficiary of your living trust while you are alive. If you are married, you can create a joint living trust with your spouse. Both of you can be co-trustees and beneficiaries in the event if one of you passes away, at which point the surviving spouse then becomes the sole trustee and sole beneficiary of the Will.
To finalize the formulation of your trust, you must transfer the property you own into the trust. Nevertheless, even though you are transferring your assets to the trust, you remain in total control, with the ability to withdraw or add property to the trust in the duration of your life. The more property you transfer into the trust while you are alive, the easier and less costly it will be for your beneficiaries.
When you obtain a Will, your beneficiaries will need to re-title all of the assets that were in your name at the time of your death into their own names. This court-supervised process is referred to as probate and can take many months or even years to finalize. In contrast, with a trust a successor trustee can easily transfer the trust property to your beneficiaries according to the terms of your trust agreement without the need for probate or approval from any court.
Another benefit of a revocable living trust is the control you enjoy over how your assets are divided. If you don’t want a beneficiary to receive an inheritance immediately, you can set up restrictions on how and when an inheritance will be distributed accordingly.
Another common reason to set up a living trust is when the trust beneficiary is a minor or individual with disability. Having certain provisions in your trust can disregard the need for the court to appoint a guardian to care for these individuals after your demise.
In addition, provisions in your living trust can also prevent the release of assets to a minor or until a person reaches an at which you think they can handle the responsibility of an inheritance. For disability individuals, leaving your assets in a trust can allow them to increase their quality of life, without jeopardizing their access to public benefits.
Furthermore, to give you greater control and flexibility, a living trust also helps safeguard you in the event of incapacity, and with longer life expectancies, the risk of incapacity is increasing. Although, it is not pleasant to think about who will manage your financial affairs if you were unable to? If you have a living trust, you will clearly identify who will manage your assets if you are incapacitated.
A Will is a simple and short document that states to whom your assets will go in the event of your death and whom you want to carry out your wishes (the executor of your estate). A Will is attractive to some because it can be quite simple and works well to manage the distribution of small estates. Nevertheless, it won’t avoid probate and will have difficulty addressing complex methods of distribution, like holding assets until an heir reaches a certain age.
Like a Will, a revocable living trust states to whom your assets should go in the event of your demise and who you trust to handle that distribution (the trustee of your trust). However, a trust is usually a longer, more complex document that provides the following benefits below:
Take note that, however, the main disadvantage of all trusts is that they are useless unless they are properly funded with assets either prior to your demise or incapacity, or upon your death with a pour-over will. Another disadvantage is that they are more costly to draft than a simple Will. Nevertheless, in the long run a trust will typically be less expensive than a will because it will avoid the cost of probate.
Essentially, all trusts can be classified as either:
A revocable trust, the most common type of trust, permits the grantor (the person who created the trust) to revise the trust or to revoke it completely, as long as he or she is alive and competent. After the grantor passes away, the revocable trust usually becomes an irrevocable trust. Revocable trusts are very flexible and can be revised and amended as your estate planning needs and change your goals in the future.
Irrevocable trusts differentiates from revocable trusts in that they cannot be amended, changed, or revoked by the grantor after they have been executed. They may, if drafted correctly, be amended or changed by the trustee to a limited extent. The main advantage provided by an irrevocable trust is that once it has been executed, assets that have been transferred into the trust are effectively out of the reach of your creditors, the IRS, and probate courts.
Although you evendently relinquish control over your assets with an irrevocable trust, you gain highly sought-after tax savings and asset protection. Thus, an irrevocable trust is most often preferred when the primary objective is asset protection and to limit tax liability.
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