Ultimate Guide to Living Trusts
What you should know when drafting your living trust
Learn what type of trust is needed based on how you hold property title and other various factors. There are significant differences between the types of trusts. Let a Hess-Verdon Estate Planning Law Firm guide you.
In this section, you’ll learn about the benefits of a Living Trust – which go far beyond avoiding probate. We will go through the advantages and disadvantages of having a trust. Also, you will learn the differences between a revocable trust vs. an Irrevocable trust.
Revocable Living Trust
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What is a Revocable Living Trust?
A revocable trust has provisions that can be canceled or altered by the Trustor. During the life of the living trust, the Trustor can receive distributed income. At death, the property transfers to the beneficiaries. So a revocable living trust is part of estate planning that assists the Trustor in protecting and managing assets. Once the Trustor dies, the revocable trust becomes irrevocable upon death. Learn more about how long can a trust remain open after death.
Now, living trusts have become very popular in the last 50+ years because it protects your family’s legacy in many ways that a Will does not. It is a wise choice to learn about Trusts, yet not all trusts are suitable for all clients. When trusts are appropriate, they come with many advantages!
So let’s get started.
A living trust is a set of legal documents created during a “trustors” lifetime.
During the creation of the trust, you will select a successor trustee who has responsibility for managing the estate for the benefit of the beneficiary(s). The Trustee allows for a smooth transfer of the settlor’s assets and bypassing the very lengthy and costly probate process.
Takeaway: The Trustor can be the Trustee. Just make sure you designate a successor trustee.
Do I need a living trust?
If you want to protect your estate and not have a high cost by legal and probate court costs, then Yes, consider getting a living trust.
What are the advantages of a living trust?
A living trust is needed when you want to have the following:
1. Stay out of probate: A living trust does not go through probate, which means the distribution of the estate assets is clear to the beneficiaries, unlike a will.
2. Keep all your assets private and out of public view: Unlike a will, a trust will usually be kept private and distribute the assets in private.
3. A Living Trust saves you money in the long run. Though a Trust most times than not cost more upfront than a Will, a living trust will inevitably save in probate costs and quite possibly even from beneficiaries contesting the trust. With an astute Living Trust attorney, they can ensure your Living trust has the protection devices from tax-related issues and a host of other documentary defect contests.
4. Avoiding a Conservatorship: Having a living trust can be extremely helpful if the Trustor one day becomes incapable of taking care of their financial affairs. Without the authority conferred by the living trust document, family members must usually go to court to get the legal authority. The family will have to get legal authorization to manage the incapacitated Trustor’s finances – which is a lengthy and public process.
5. Protects minor children: A trust can hold money for minor children. The funds can be allocated at different times based on age, for example.
6. Guardianship: The trust can provide a set of instructions by the Trustor determining who takes care of the minor children in case one or both parents pass away.
Revocable vs. Irrevocable Trusts: What are the differences
We will first start with the revocable trust. The revocable trust allows the Trustor the ability to amend its terms at any time. The Trustor can remove beneficiaries, designate new ones, as well as stipulate the management of the assets within the trust. You may have read about a revocable trust, or merely living trust, family living trusts. They are synonymous.
The disadvantage of a Revocable Trust vs. Irrevocable trust
Now the drawbacks of the living trust may be the following:
- When funding the living trust, it will require the Trustor to reregister securities, real property, and other assets in the trust name. You remain in complete control as the Trustor. Reregistering may involve additional costs, such as filing fees.
- Revocable Trusts do not save income taxes, nor estate taxes. In most cases, the state treats the revocable trust as the grantor’s property for both estate and income tax.
- Unhappy heirs can contest a revocable trusts.
- Creditors can go after revocable trusts.
- Trusts are not all drafted equally. It depends on the experience of the drafting attorney and your family situation to achieve the best result for your estate planning.
As can be seen, there are advantages and disadvantages, and thus why it is imperative to speak to an estate planning attorney.
How much should a revocable living trust cost?
We have seen living trust in California created as low as $699.00 to $20,000.00 for similar work.
How can this be?
The concern is always, “are you being gouged, or are you being short-changed with a boilerplate document that won’t be effective when you need it!”
When it comes to the price of a revocable living trust in California, the range should be $3,500 to $5,000 based on the complexity of your estate.
The reason is the following for the range. If your estate is one property, a bank account, and other investment assets, you should fall on the lower end of the spectrum. You see, the more assets, whether it be businesses you own, additional homes, stock certificates, and more, will determine the “depth” of the time it takes the attorney to draft your trust. Also, spend time on the family dynamics to make sure your trust avoids trust disputes or trust litigation in the future.
Here are some types of Irrevocable trusts:
1. Insurance Life Insurance Trust [ILIT]: Many people don’t understand that life insurance policy, depending on the amount, can trigger an estate tax bill. One option to mitigate estate taxes is an ILIT. An ILIT is a type of living trust that was explicitly set up to own a life insurance policy.
2. Qualified Terminable Interest Trust [QTIP]: a QTIP is an A/B trust arrangement and used by a married individual.
3. Charitable Remainder Trust: A charitable trust allows you to donate generously to a charity of your choice, and give you and your heirs a big tax break. Advantages are a reduction in Income taxes, estate taxes, capital gains tax.
4. Testamentary Trust: et is a trust, when established in the last will, typically created for the benefit of minor children.
5. Funded or Unfunded Trust
6. Credit Shelter Trust
7. Blind Trust: In a blind trust, the Trustee has full discretion over the assets. Initiated by the Trustor and can be terminated, but cannot exercise any control. Typically used when the investment holdings could potentially put the Trustor in conflict of interest with a regulatory issue. Usually used by a wealthy person entering into political office.
How does an Irrevocable trust work?
An irrevocable trust is one essential part of estate planning, asset protection, and tax strategy planning. With an irrevocable trust, the Trustor gives up full control and ownership of the property.
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