As both your estate and your family grow over the course of your lifetime, your estate plan will likely need to grow as well to accommodate the additional needs and goals that come along with that growth. One of the most popular tools used in a comprehensive estate plan is a living trust, due in large part to the flexibility of a living trust and the various goals one can help to achieve. If you are contemplating the addition of a trust to your estate plan, the trust attorneys at Morris Hall PLLC explain some of the most common benefits of living trusts may help.
How Is a Living Trust Different from Other Trusts?
A living trust is one of two broad categories into which trusts are divided, with the other category being testamentary trusts. The primary difference between the two is that a living trust activates during the lifetime of the Settlor, or creator, and a testamentary trust activates at the time of the Settlor’s death through a provision in the Settlor’s Last Will and Testament. Fundamentally, however, both categories of trust are the same in that any type of trust creates a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason.
Top 5 Living Trust Benefits
The uses of a living trust are numerous and varied; however, there are some common benefits from the inclusion of a living trust into an estate plan, including:
- Probate avoidance — If you use a Last Will and Testament to distribute your estate, the Will must be probated. That means the beneficiaries of the Will must wait until the conclusion of the probate process before receiving their intended gifts. Even a relatively modest and uncomplicated estate can take months to get through the probate process which is why using a revocable living trust is often a better option. The benefit of using a trust to distribute estate assets is that trust assets bypass the probate process altogether, allowing them to be distributed as soon after your death as you dictate using the trust terms.
- Protecting assets from beneficiaries — when you use your Will to gift assets, those gifts are distributed to the beneficiaries in one lump sum, which isn’t always ideal. Young beneficiaries, spendthrift beneficiaries, or those who have struggled with addiction in the past should not be handed a large sum of money. The risk of the inheritance being squandered is simply too great. Using a living trust to pass down an inheritance, however, provides the ability to stagger the distribution of that inheritance, thereby limiting the risk and protecting the assets you worked hard to acquire.
- Planning for the possibility of incapacity — planning for the possibility of your own incapacity is just as important as planning for the end of your life. If incapacity does strike, someone must make decisions for you and take over control of your assets and finances. A revocable living trust is an excellent incapacity planning tool because it allows you to appoint yourself as the Trustee of a trust and someone you trust to take over control of your assets and finances as your Successor Trustee. If incapacity does strike, your Successor Trustee takes over control of the trust assets without the need for a court to approve or intervene.
- Protecting assets from threats — assets transferred into an irrevocable living trust become trust assets. As such, you no longer have an ownership interest in those assets, meaning they cannot be reached by creditors or other threats. There are a number of specialized irrevocable living trusts, such as a Domestic Asset Protection Trust (DAPT), that can help you protect your assets.
- Planning for the high cost of long-term care – many seniors turn to Medicaid for help covering the high cost of nursing home care. Qualifying for Medicaid, however, can put a retirement nest egg in jeopardy if you failed to plan ahead because of the Medicaid asset limits used to determine eligibility. Creating an irrevocable living trust as part of a larger Medicaid planning component within your estate plan can protect those assets while ensuring your eligibility for Medicaid if you need it in the future.
Contact an Living Trusts Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about the benefits of including a living trust in your estate plan, contact the experienced trust attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your free consultation today.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.
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