Benefits of a Living Trust
None of us like to imagine our own death, which is probably why so many families are caught unprepared. A living trust is an important estate planning tool that your family cannot afford to be without when the inevitable does happen. A living trust, much like a will, allows you to control who receives your assets after you die. However, there are more reasons for creating a living trust. For instance, a properly drafted living trust can:
- Minimize the expense and delay of probate.
- Provide your family with privacy and financial security.
- Provide management of your assets if you become incapacitated.
- Minimize or even eliminate federal estate taxes if prepared properly!
What is Probate?
Probate is a complex legal process that the courts use to formally administer a will. Probate typically takes six to nine months to complete and can whittle away as much as 10% of your estate's gross value. It may also require the service of a lawyer. Nonetheless, even if you die without a will your estate assets must still pass through the probate system. In that case, the court will decide how to distribute your estate among your relatives based upon a statutory scheme created by legislature. Until the court determines the proper administration, all your estate assets are frozen and your heirs are unable to access your accounts to pay any bills and expenses.
A living trust can help avoid probate. This is because when your assets are placed into a trust, you simply own beneficial title to these assets, while the trust itself holds legal title. You can still control the trust assets as if they were your own, but when you die, you do not hold legal title to the trust property and therefore, probate is avoided for the assets placed into the trust. By transferring your assets, a living trust will save your loved ones thousands of dollars in court required probate fees. See example below:
|Gross Estate Value
||Estimated Probate Fees
How Does a Living Trust Work?
Simply put, a trust is a legal entity, much like a corporation, that allows you to gather together in one document all your significant property. The trust, not you, owns legal title to that property. This doesn't mean that you relinquish control of your assets. Since you, the grantor, will usually appoint yourself as the trust's initial trustee, you still have complete control of your property. You can do what you want with that property - you can even transfer some property out of the trust or add property to it. Most importantly, a trust allows you to minimize estate taxes and eliminate probate fees, while providing for the quick resolution and efficient distribution of your property to loved ones upon your passing.
In order to take advantage of the benefits of a living trust, you must transfer your legal interest in the property into the trust. In general, your most valuable property should be placed in your trust. This may include: your house; other real estate; business interests, including stocks, bonds and mutual funds; money market accounts; brokerage accounts; royalty contracts, patents and copyrights; jewelry and antiques; precious metals; works of art; and valuable collections. Technically, accounts or funds such as life insurance, IRA’s and 401(k)’s cannot be owned by a trust, but you can still avoid probate on these proceeds if you name a beneficiary or successive trustee to receive the funds in those accounts when you pass.
Here's some more information on real estate transfers into a living trust:
- Property tax reassessment: Most states, including California, do not require a reassessment when you transfer property into a trust of which you are trustee.
- Transfer taxes: These taxes, which are assessed on real estate transfers, are generally not imposed when the transfer is to a living trust.
- Mortgage interest deductions: You, as the grantor, still have the right to deduct mortgage interest from your income taxes.
- Part Interests: You can transfer any part interest you have, such as a time-share or percentage ownership, to your trust.
Trust Your Family to the Professionals
We are sometimes asked, “can’t I just create a living trust using an Internet site?” Our general response is that you can. But perhaps the biggest challenge you may face in doing so will be uncertainty of the binding effect that the document will have on your estate, and more importantly, your family. Indeed, the leading Internet provider for legal documents discloses in small, hidden type that “[t]he information provided in this site is not legal advice . . . and is not a substitute for an attorney or law firm.” Under these circumstances, if security and peace of mind are of utmost concern when selecting a professional for a properly drafted estate plan specific to your wishes, why settle for less when your family needs you most?