Estate planning strategies are all about giving you the peace of mind that your finances and your loved ones are taken care of, but how do you know which ones make the most sense for you, your financial standing, and your wishes?

Here, we go over a common estate strategy: creating a living trust.

How Do Living Trusts Work?

A living trust is a legal document that includes provisions for the management and distribution of your assets during your lifetime and after your death. Unlike last wills and testaments, a living trust becomes active as soon as assets are transferred to them.

There are three key roles involved: the grantor (the person that establishes the trust), the trustee (the person who manages the trust), and the beneficiaries (the people who receive the assets). In many cases, the grantor is also the trustee until they pass away, after which a “successor trustee” takes over.

Why Choose a Living Trust?

Setting up a trust may not make sense for everyone, but this estate planning tool is a popular option among individuals who want to…

Protect assets in the event of incapacitation

One of the biggest benefits of living trusts is that you can define who takes over the management of your estate if you’re unable to manage it yourself. Without a trust, a representative of the court, rather than a successor trustee, would be in charge of your assets and your care.

Gain control & flexibility

In a trust document, you can add specific terms, so you know your assets are being handled exactly according to your wishes. For example, you might specify that certain assets only be used for your child’s education. Revocable trusts are also flexible as they can be adjusted if your estate planning goals or life circumstances change.

Potentially minimize tax liabilities

Revocable trusts are subject to estate and inheritance taxes, but irrevocable trusts are not in many cases. While choosing an irrevocable trust means giving up certain levels of control, it may help you maximize the money that’s passed on to your loved ones.

Living Trusts & Wills: What’s the Difference?

Though there is some overlap, living trusts and wills have distinct differences. A living trust is most helpful for managing and distributing your assets during your lifetime and after your death. A will allows you to leave instructions for critical decisions that must be made once you’ve passed, such as selecting children’s guardians and your executor. However, beneficiaries of a will do not have access to your assets while you’re still alive.

Additionally, upon your death, your will goes through a probate process, during which a court decides how to distribute your estate. It’s often long and complicated, but with a living trust, you can forego the process completely. A trust’s assets can be transferred directly and privately to the trust beneficiaries when the grantor dies or becomes incapacitated.

Although they come with many benefits, living trusts are complicated documents, so they may cost you more to create, especially if you need to hire an estate planning attorney to help. Trusts also require a notary public, and a will does not.

Types of Living Trusts to Know

Revocable

The most popular form of living trust, revocable trusts allow the grantor to designate themselves as the trustee, which enables them to maintain full control over their assets and make any adjustments to the trust rules at any time. They could, for example, change the beneficiaries, move assets, or eliminate the trust completely.

Irrevocable

With irrevocable living trusts, on the other hand, the grantor cannot name themself as the trustee. The trust itself becomes the owner. While the grantor may be able to change the trust rules under specific conditions, they give up nearly all of their rights of control and can never revoke the assets they assigned to the trust. However, irrevocable trusts generally offer greater legal and tax protection

Is a Trust Right for You?

Whether you’re weighing the benefits of revocable and irrevocable trusts or wondering if a trust is right for you at all, we’re here to answer any of your questions with our holistic approach to financial planning. To learn more, connect with us today.