Financial Planning Emphasis: Living Trust

Let us take a closer look at Living Trusts and their role in financial planning, including how they work, what they include, and whether you need one.

What you will discover:

What exactly is a Living Trust?
What is the difference between a Living Trust and a Will?
What are the benefits of establishing a Living Trust?
How can a Living Trust assist me manage my money while I am still alive?
What is the distinction between a discretionary and a permanent trust?
Is a Living Trust appropriate for my family and me?
Make succession preparation a component of your overall money strategy.

You are off to a good start if you have created a family budget, established an emergency savings fund, and planned for your future. However, if you have not yet arranged your inheritance, your financial strategy is inadequate. You might be amazed at how well a Living Trust works into your overall financial plan, so you owe it to yourself and your loved ones to plan your inheritance and think about establishing a Living Trust.

What exactly is a Living Trust?

A Living Trust is a formal instrument that goes into action the moment it is notarized. This paper appoints a person (the “trustee”) to handle certain possessions on your account while you are still living. You have the option of serving as guardian during your lifespan. After your demise, all assets put in the trust transfer directly to the designated heirs, with no inheritance expenses.

Keep in mind that assets put in a Living Trust become the trust’s property and are managed by the administrator. Because only the trustee has the power to make cheques and disperse trust property, many individuals choose to act as administrators of their Living Trusts while they are still living.

What is the difference between a Living Trust and a Will?

A Will (also known as a Last Will and Testament) becomes effective upon your demise. It has a narrower reach than a Living Trust but is no less essential. A Will enables you to name an administrator, direct the distribution of your property, name a caretaker for your children, and define burial plans. A Will’s administrator, like a guardian, ensures that your desires and assignments are carried out as stated in the document.

Even if you have a Living Trust, you should still have a Will. One reason for this is that not all of your assets can be actually moved to a Living Trust because you must actively transfer them in paper. Furthermore, some states do not allow naming a caretaker for young children in a Living Trust. Furthermore, if you want to erase any obligations due to you, you must do so through a Will rather than a trust.

Wills, unlike corporations, must typically go through succession court, which may charge costs depending on the worth of the assets. Legal costs may also be incurred when resolving an inheritance.

What are the benefits of establishing a Living Trust?

A major advantage of a Living Trust is that it is not subject to succession, which can save your heirs a lot of time and money. Another benefit of a Living Trust is that it is a private document, whereas Wills are public record.

How can a Living Trust assist me manage my money while I am still alive?

Because a Living Trust’s assets are available during your lifespan, it can become an important component of your financial arsenal. For example, if you become severely sick or wounded and are unable to handle your money, your designated administrator can take over your business immediately. This is particularly essential if you have children, own a company, actively handle one or more assets, or have other non-corporate trustee responsibilities that would be stifled or jeopardized if you were disabled. If you have not delegated power to someone to manage your assets in the event of your death, a judge may designate someone to do so, and this person may be compelled to have each transaction authorized by the court.

A Durable Power of Attorney, like a Living Trust, offers a fallback plan by naming a trustworthy individual to act on your behalf. However, there are some significant variations. The trustee of your Living Trust, for example, can only manage assets placed in the trust, whereas the agent named in your Durable Power of Attorney can have broader powers to handle a variety of financial activities on your behalf, as long as you allow for those powers in your Durable Power of Attorney document. Consider having the same individual act as both an administrator and a representative in your Living Trust and Durable Power of Attorney. If you become disabled, the same individual would be able to handle your money concerns both within and outside of your trust.

Who you choose to handle your funds and the amount of obligation you put on their hands if you become unable to manage them yourself for whatever reason is a very personal choice. This is often an excellent opportunity to consult with a lawyer about your succession plan and the specifics of your circumstance.

What is the distinction between a discretionary and a permanent trust?

You can alter or rescind the terms of a renewable Living Trust at any moment, whereas the terms of an irreversible trust are set once completed. An irreversible trust has the benefit of not including the assets in the trust in your inheritance for estate tax reasons. Furthermore, any revenue produced by the assets in a permanent trust is usually exempt from capital gains tax.

Because federal estate taxes presently apply only to assets worth more than $11.7 million and only 18 states have any estate or succession taxes at all, permanent trusts are typically used by high-net-worth people.

Is a Living Trust appropriate for my family and me?

You must determine whether a Living Trust is the best option for you, but it is best to confer with an estate preparation expert first. Important factors to consider include:

Your need for seclusion.
The expense of inheritance court.
Whether you have offspring who are reliant on you.
Your total financial wealth.
Desire or requirement for financial security if you become disabled.
The ability to establish charity foundations.
Making preparations for grown offspring with unique needs.

Make succession preparation a component of your overall money strategy.

You may not want to think about your death, but it is unavoidable, and odds are that some of your possessions will survive you. A well-thought-out money strategy should include sufficient succession preparation. A Will is necessary, but a Living Trust can also provide financial stability during your lifespan. Contact an estate preparation expert immediately to explore your choices.