Living trusts – trust relationships are a good way to transfer ownership, after your death, to the relatives, friends, or charities you have chosen. Essentially, a living trust plays the same role as a declaration of will, with the crucial difference that the property left, in this case, must go through the probate court process, which deals with the sharing of assets left by deceased family members to their respective heirs.
In the inventory, a deceased person’s will is proven to be valid in court, the person’s debts are paid, and generally, after about a year, the rest of the property is finally distributed to the beneficiaries. In the vast majority of court cases, heirs waste time and money.
On the other hand, properties left through a living trust, can be transferred quickly and directly to their heirs. They do not have to worry about a probate lawsuit, which means that they will not have to spend their money to pay court and attorney fees.
How a living trust works
The key to establishing a living trust and avoiding probate is that the grantor – the person who establishes the trust – can revise, change or revoke the trust for any (or no) reason, at any time before his death, provided that is legally competent. The grantor can appoint himself as the initial administrator, he can control and use the property as he sees fit, while he lives.
With a living trust for a single person, after you die, the person you nominated in your trust document becomes the successor administrator. That person is responsible for transferring the trust property to the family, friends, or charities, which you have named as your beneficiaries.
With a couple’s trust, the spouse or partner manages the trust. A “successor” trustee takes office after both spouses or partners die.
There is no court or government oversight to ensure that your successor administrator complies with your living trust’s terms. This means that a vital element of a living trust is to appoint someone you fully trust, as its successor manager.
If there is no one to trust enough to name as a successor to succession, a living trust’s probably not for you.
You could appoint a bank, trust company, or other institution as a successor administrator, but do so serious inconvenience.
In some cases, a living trust may continue for a while after the death of the trust creator – for example, if the trust is established for the benefit of a child. These trusts are managed by your successor and can last until the young beneficiaries reach the age specified in your “Statement of Trust”. Then the beneficiary receives the property and the trust ends.
What’s important to know when considering a living trust:
1. Unfortunately, about half of us will end up with some kind of disability. Wills do not foresee this possibility. Living trusts in life, help prevent unwanted custody issues, guardianships, etc.
2. Wills go through “inventory lawsuits” to be settled. A living trust avoids the expense and delay of “death lawsuits”.
3. Wills do not protect assets from the cost of nursing homes. A living trusts can provide powerful asset protection for your home and life savings.
4. The living trust can extend a retirement account (IRA) * to heirs for years – often multiplying the value of the IRA by three times or more.
5. Living trusts can protect children’s inheritances in divorce proceedings and keep assets in their grandchildren’s lineage.
6. Living trusts avoid the additional inventory needed for your property outside the state in which it was implemented.
7. Living trusts can protect your assets if your spouse remarries after your death.
*allows you to save money for retirement in a tax-advantaged way. An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
