24 Oct Do I Need a Living Trust?
Everyone’s assets and post-death plans call for a unique estate plan, tailored to their needs. One term that may have come up in discussion may have been living trusts, which are an important option to look into.
What is a living trust?
A living trust is a place to keep assets to be distributed after the grantor’s death, similar to a will (we’ll get there). Living trusts speedline the transfer process from the grantor to trustee and is especially useful when a married person would like to distribute personal assets after their death, even if their spouse is still alive.
The term “living trust” makes the trust sound flexible and adaptable to the grantor’s lifestyle. This is half true of the real thing, as there are two types of living trusts: irrevocable and revocable.
Irrevocable Living Trusts
For irrevocable living trusts, the “living” part only refers to the state of the grantor when it is signed. Once the trust is signed it is not to be changed, as are the assets included in it. Of course, nothing is set in stone, so even irrevocable living trusts can be changed and even revoked. While it’s possible to change or revoke the trust, it requires signatures from the designated trustee, the grantor, and a trust protector.
An irrevocable living trust is a secure way to ensure that assets are left to specific trustees and are safe from everyone, including the grantor.
Revocable Living Trusts
Where irrevocable living trusts are fixed and difficult to change, revocable living trusts can be easily modified when the grantor wishes. Grantors of revocable living trusts also maintain ownership and control over the assets included in the trust, and don’t need to cede ownership as in irrevocable trusts.
Revocable living trusts are more adaptable and efficient than irrevocable trusts, and are the more common of the two.
Differences between trusts and wills
There’s quite a bit of overlap in the respective roles of trusts and wills, but each has its own abilities and limitations. It’s important to remember that a trust is NOT a replacement for a will, and a verified will should be considered a requirement when planning post-death arrangements.
In Washington State, both trusts and wills require legal council to make official. This is to prevent scammers from roping vulnerable individuals into providing back and asset details.
Role of a Will
A will is designed to comprehensively plan for the grantor’s death. That means it lays out a plan to disperse assets, names guardians for children (should any guardians be required), and sets (reasonable) conditions for the dispersion of assets.
A living will sets out a plan in the case that the grantor has not died, but is incapacitated. It gives directions on the grantor’s wishes regarding life-saving procedures, end of life care, and organ donation.
Role of a Trust
A trust is solely for the dispersion of assets after death. It does this very well, but it is not the place for listing end of life wishes or guardians of children. Unassigned and personal assets are to be distributed in the trust, or rather, anything not listed in the will should go in the trust.
As mentioned earlier, trusts are a good place to assign assets when the grantor’s death would transfer the assets in the will to their spouse. If the grantor has people they want to be trustees but are likely to be left out of their spouse’s will. This applies to grantor’s with dependents from a previous marriage, or simply dependents with complicated marriage.
What can’t a trust do
End of Life Care
A trust cannot outline the end of life care or funeral plans. Those are best organized through healthcare planning.
Assign Certain Accounts
Trusts cannot contain retirement accounts such as 401Ks, but a trust can be left to a beneficiary within a 401K. This also applies to life insurance, health insurance, and uniform transfers to minors. It is best to speak with a financial advisor about what is best to be left in a trust.
Name and Executor
While trusts do name property beneficiaries, they do not name executors. This is because the executor is normally the bank or financial institution the trust has been left in.
Most grantors avoid estate taxes, simply because most people avoid the millions of dollars in assets required to owe estate taxes. Any state taxes that are applicable to the assets in the trust are still applicable, despite the assets being in a trust.
Benefits of a Trust
A trust cannot be contended in the way a living power of attorney can be, meaning the grantor’s assets are more likely to go exactly where the grantor wanted them to go.
Doesn’t Require Witnesses
THis is more of a benefit for the grantor than the trustee, as the grantor can make changes with only the assistance of the financial institutions and their legal advisor.
Since living trusts never have to go through probate the beneficiaries and assets included are never made public. This will be further discussed in the probate section.
The Probate Section
One of the advertised benefits of trusts is that they aren’t subject to probate hearings. This is misleading, as skipping probate isn’t an absolute positive as far as asset distribution goes.
Probate hearings are costly and can be time-consuming, so there is a financial benefit to avoiding them. That being said, the grantor should already have a will, which will have to go through probate anyway. Simply creating the trust will cost time and money, as it will require a lawyer and time to write and revise it.
One benefit of going through probate is that of outstanding debts. Should the grantor have any outstanding debts, the probate court will publicly announce that it is in process and that any people who are owed debts by the grantor need to step forward within a set time frame or lose their claim to their debt. Since trusts are not public, there is no time limit for debts to become obsolete.
Should the grantor have lived a complicated financial life, i.e owning property in different states, having assets in different countries, etc., avoiding probate is a benefit. Each state has its own probate process, and any property owned in a different state will need to go through its own probate process. This can get very complicated and expensive for the trustees very quickly.
So Should I Get a Living Trust?
That depends on your situation. Most people are able to make do with a will, and a will is able to do most of the things a living trust is able to. Trusts mainly benefit families that have more complicated assets and trustees/beneficiaries. The best way to know what is best for you is to talk with a lawyer and a financial advisor.