A living trust is a document that you create where you place or transfer your assets to the trust for the purpose of the beneficiaries that you plan to give the assets to. You will be the trustee over the trust while you’re alive, but you should appoint someone to take over and manage the trust after you pass away. Choose a trustee who is reliable, who is willing to do the job, who manages money well, and who will act in the beneficiary’s best interests. One benefit of having a living trust is that it allows you to bypass the probate process, which can be stressful and lengthy. Two types of living trusts exist; revocable and irrevocable. A revocable trust is when you control all assets in the trust, but the assets in the trust remain as part of your estate and could be subject to taxation if your estate’s value exceeds the estate tax exemption amount. With an irrevocable trust, you give up control of certain rights in the trust, and you can protect your assets from creditors who might come after they had your estate gone through probate. Once an irrevocable trust is set, no further changes can be made to it.
What Can Be Placed In A Living Trust?
All kinds of assets can be placed in a living trust. These assets might include real estate, bank and savings accounts, brokerage accounts, or even fine art and jewelry. Annuities, certificates of deposit, and safe deposit boxes can also be added to your trust. If you opened a custodial brokerage account, you can transfer the funds in this account to the trust you set up for them. This is especially a good idea if you believe that their assets will grow significantly and you don’t want to give the funds to them outright when they reach their 18th or 21st birthday.
Main Benefits Of A Living Trust
Aside from keeping your assets out of probate, there are other benefits of having a living trust. With a trust, you get to control which assets you want to transfer to your beneficiaries and when they will receive them. For example, if you set up a trust for your child, you establish a rule that keeps him/her from obtaining the assets all at once. Instead, he/she might receive them every few months or when he/she proves that he/she is a responsible adult who has a full-time job or starts a business. And you can keep your assets away from creditors. Having a will and living trust also ensures that all information about your assets is private.
Mistakes To Avoid When Setting Up A Trust
One mistake to avoid is to not include all of your assets in the trust. Any assets you don’t include will be subject to probate. Another mistake is assuming that a living trust can replace your will but it isn’t true. This document is good to have on hand in the event you pass away without adding certain assets to your trust. You can make provisions for the distributions of these assets in your will.
Don’t Try To DIY Your Living Trust
It might be tempting to DIY your living trust but this is not a good idea if you’re not knowledgeable about estate planning and your state’s estate tax and inheritance laws. It is better to get assistance from an experienced estate planning attorney. He can walk you through the process so that you set up the trust the right way.
Establishing a living trust can reduce the stress that your loved ones and beneficiaries may experience after your death. If you live in the Duluth area and need to create a trust, contact us. We are here to guide you in making the best decisions that will benefit you and your loved ones.