Trusts are frequently used in estate planning. Living trusts created during the life of the grantor facilitate the transfer of assets to heirs without the cost and publicity of the estate. Trust transfers are usually faster and more efficient than will transfers. A living trust (also called an inter vivos trust) is simply a trust that is created while you are alive.
Beneficiaries you name in your living trust receive trust ownership. Instead, you could use a will, but wills must go through the court process that oversees the transfer of your property to your beneficiaries. Trusts can be organized to achieve a variety of different objectives. For example, you can use a trust to transfer property, help minimize estate taxes, preserve the assets of minors until they are adults, or benefit a charity.
The surest way to avoid probate is to have a trust. A living revocable trust does not need court approval. Everything is kept private, and your successor trustee can take over your management immediately after your death. The second document of the plan is called a “dumping will”.
Why do you need a will if you have a trust? The trust can only affect the property that is specifically transferred to you. The will acts on any property that is not transferred to the trust. The will provides for the collection of such property, the payment of inheritance costs and the transfer of what remains in the hands of the trust. In effect, whatever is left in the testamentary estate “is poured into the trust and then administered according to the terms of the trust.
The will may also appoint guardians for minor children and may address other issues that do not relate only to “assets”. Anyone who is single and has assets titled in their exclusive name should consider a revocable living trust. The two main reasons are to keep you and your assets out of a court-supervised guardianship and allow your beneficiaries to avoid the costs and hassles of probate. A trust allows you a certain level of control over your estate that wills cannot provide.
The structure of trusts allows you to decide how and when your assets will be distributed. If you have young children, this can be a great way to make sure they don't receive their inheritances in a single lump sum. Trusts can be created with certain life milestones in mind, allowing children to receive funding after graduating from high school or college or even after marriage. Assets, whether real estate, bank accounts, or other tangible or intangible assets (but not IRAs or other retirement accounts), are transferred to the trust's name while it is alive.
A trust is a fiduciary agreement that specifies how your assets will be distributed, usually without the participation of a probate court. Practically every trust I write has many of the same provisions (“standard text”), but no two trusts are identical. While your expensive assets, such as a house, should be owned by your trust, you likely have other smaller souvenirs: a collection of porcelain, watches, etc. We also work with clients and their lawyers in connection with Schwab's appointment as current or successor trustee.
This is achieved by creating AB Trusts or ABC Trusts and then dividing your assets roughly equally between the two trusts. But a will can control the alienation of assets you haven't included in your trust, and you can create a will to transfer to your trust any assets you hold at the time of your death, if you haven't already done so. Upon death, certain assets remain eligible for an increase in base, even if they are in a revocable trust at the time of their death. Assets held in a revocable trust, on the other hand, are considered part of the original owner's estate.
While a will names your beneficiaries and how assets will be distributed, trusts can give you more control over these components. Also as discussed in Ten Greatest Mistakes, a living trust is not a public document, unlike a will submitted for probate. Neither living wills nor trusts can help you lower estate tax, but most estates don't owe taxes. When John's doctor certified to Mary that John could no longer make responsible decisions about himself, Mary became the sole trustee of the trust without any court action required.
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