We live in uncertain times; that’s why it’s vital to protect your family and everything you have built during your life. The task of drafting your last wishes can be stressful, but there’s no better time to plan your family’s future than when healthy and in a clear state of mind.
Having a strategy to pass on your assets will make the process smoother for you and your loved ones later in your life. This is where a living trust comes in. A living trust isn’t necessary for everyone, but it will certainly help if, for instance, you have an extended family where things could be more complicated, have a lot of assets, or you own property in more than one state. A North Carolina estate planning attorney can ensure that you get everything covered when deciding on a strategy.
What Is A Living Trust?
Unlike a will that simply states your final wishes as to what should happen to your estate and assets upon your death, a living trust is a legally binding document that allows you, the trust settlor or grantor, to permit a beneficiary, also called a trustee, to assume ownership of your assets.
The trustee is expected to manage assets placed in their trust judiciously on your behalf and that of other beneficiaries. They are also responsible for ensuring that each beneficiary receives their share of the assets in the trust as per your directives. A trustee can be yourself or another person of your choice.
After you die, the person you named in your trust document to be the successor trustee takes over and transfers the trust assets to your family, friends, or charities you named as the trust beneficiaries. Probate isn’t necessary for assets held in trust, and in most cases, the whole thing can be handled within a few weeks.
Because the purpose of a living trust is mainly to protect assets from probate and get them distributed to beneficiaries more quickly, the trust is only useful if you put money and property into it.
Types of Living Trusts
There are two main types of living trusts; irrevocable and revocable living trusts.
Irrevocable Living Trust
This is a permanent trust, whereby all assets placed in the trust remain intact and can only be taken out if everyone named in the trust agrees. Having an irrevocable living trust means that you’ve permanently surrendered control over your assets. With an irrevocable living trust, you cannot modify or terminate the trust without approval from everyone named in the trust. If you want to remove a beneficiary from an irrevocable trust, that beneficiary needs to agree and sign off. The reason for this inflexibility is that as soon as you, the grantor, sign the documents for an irrevocable living trust, you remove all ownership rights to the assets.
You will also have to pay taxes such as income taxes, inheritance taxes, or estate taxes on the assets included in the trust since the assets in a revocable trust are still yours. One main advantage of an irrevocable living trust is you don’t have to pay taxes on the trust. That’s because the assets are no longer yours. They belong to the trust, and all taxes apply to the trust itself.
Revocable Living Trust
A revocable living trust is different than an irrevocable living trust in a number of different ways. It can be changed over time, allowing you to still control the assets in the trust – even after passing. That means you can alter or even void the trust whenever and however you want. You can remain as the trustee, and so you can make any decisions as you see fit. If you decide that you no longer wish to give assets to a specific beneficiary, you can remove that beneficiary. However, once a grantor dies, a revocable living trust becomes irrevocable since the grantor can no longer make changes to the trust.
Benefits of a Living Trust
Living trusts serve as far more than just where assets are to go upon your death. Here are some of the reasons a revocable trust should be part of your estate plan:
- Avoiding the probate process: Establishing a living trust can help you and your family avoid expensive probate proceedings, allowing assets to be transferred to beneficiaries faster. Because your trust rather than your estate holds these assets, they do not have to go through the probate process.
- Reduce contests: While a trust doesn’t eliminate contests, ensuing disputes are considerably less when compared to a will. Contesting a trust can be very costly and time-consuming, which makes people avoid related lawsuits altogether. You can also specifically disinherit anyone who poses a challenge to your wishes upon your death.
- Planning for incapacity. If you lose your mental capacity, the successor trustee can step in and manage the assets in the trust for you without having to apply to the courts for authority to do so.
- Controlling the distribution of your property. Like a will, your living trust dictates what happens to your assets after your death. And you’re not limited to distributing the property immediately to your beneficiaries. For instance, if one of your beneficiaries is a minor, you can set up a trust within your living trust for that beneficiary until they reach the majority age or an age where you feel they’ll be mature enough to handle their inheritance.
- Helps avoid conservatorship: If you initially named yourself trustee and named your successor upon your demise, the court will likely go along with your decision. However, if you did not designate a successor, the court will specify one to handle your affairs according to the law.
- Allows for privacy: The ability to bypass the courts is one of the big pluses of a living trust. A will has to go through probate, which is the thorough but painstakingly lengthy legal process used to pay taxes, value your estate, transfer your assets and settle debts. By keeping your assets in a living trust, you retain privacy for your family after your death. This means people can’t search the public record to see what assets you owned at the time of death and how they were distributed among your beneficiaries.
A Living Trust Is A Great Tool For Estate Planning
A living trust can be the ideal tool to ensure your loved ones and property are protected after you become incapacitated or die. It ensures easy transfer of your assets while bypassing the often expensive and complex legal process of probate.
Living trusts are complicated, and you should consult with a trusted estate planning professional before embarking on a project of this magnitude. Contact the team here at McCollum Law today to schedule a consultation to take a look at your specific situation and come up with a plan for your estate.