Do I Need A Living Trust?
Living Trusts are a common estate planning tool. The Living Trust’s primary purpose is to avoid the costs of probate and keep the deceased’s affairs private.
Most people want the money that they’ve worked hard for all their lives to go to their children or a charity of their choice. So it stands to reason that they don’t want the lawyer fees and taxes to take a giant Pac Man sized bite out of it.
Living Trusts don’t save you a nickel while you are still here on earth, but after death they can eliminate the need for probate and its avoidable fees. It some cases it can eliminate federal estate taxes. So, more property goes to your beneficiaries.
Living Trusts are simple, but they seem to be confused rather easily. I’ll give you a rundown of the two most common types of living trusts so you can decide if you need one in the first place. Second, you will have some education before you visit the attorney’s office, which will help your wallet stay a little fatter.
The two most common living trusts are:
- The Basic Living Trust – avoids probate for an individual or couple
- The Living Trust With Marital Life Estate – the AB trust, avoids probate and saves estate taxes
The Basic Living Trust
With the recent extension of the Bush Tax cuts, estates under $5 million will not owe federal estate taxes. So unless you think you will owe federal estate taxes at your death or the death of your spouse, a basic living trust may be all you need. It will allow your property to avoid probate and go directly to your named beneficiaries. Therefore, avoiding the absolute pleasure of dealing with the probate court and it’s fees.
So if you are married, this basic living trust will handle jointly owned property as well as the stuff you have separately.
To create a basic living trust, the grantor, that’s you, transfer ownership of some or all of your property to the living trust. Because you make yourself the ” trustee,” you don’t give up any control over the property you put in trust. If you and your spouse create a trust together, you will be co-trustees.
In the trust document, you name the people or institutions you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time.
When you pass on to the great unknown, the person you designated takes over, otherwise known as the successor trustee, transfers property to your beneficiaries according to your wishes. In most cases, it will be done if a few weeks with minor paperwork.
The Living Trust With Marital Life Estate
Most people don’t need to think about federal estate tax, which kick in only when someone dies owning more than $5 million worth of property. But if you and your spouse expect to own that much property, consider creating a living trust that will both avoid probate and also save on federal estate tax.
If you don’t, there may be a big estate tax bill when the second spouse dies. That’s because the survivor’s estate includes his or her share of the couple’s property plus the property inherited from the deceased spouse.
An AB trust lets a couple pass the maximum amount of property to their children or other beneficiaries after both spouses die, while at the same time ensuring the surviving spouse is financially comfortable. It allows you both to utilize your Unified Credit, effectively avoiding federal estate tax on not $5 million, but $10 million.
Living Trusts are a basic estate planning technique used all the time. You don’t have to be uber-rich to take advantage. However, be careful, I’ve seen them used for really bad reasons too. If you have some questions about a living trust or just want to get a second opinion, write me at email@example.com, or call me at (859) 225-2596.