One of the questions that often comes up during estate planning is whether or not to include a living trust in the mix. There are a number of benefits that come from this arrangement, but there are also some potential drawbacks that must be considered. When talking with a financial planner, it pays to spend some time deciding if a trust will accomplish what the individual has in mind.
What is a Living Trust?
This type of trust fund is created while you are still alive. Essentially, you are choosing to turn over specific financial assets to the trust and allow a trustee to manage them for you. Trusts of this type may be set up to be revocable or irrevocable. In other words, you can retain the ability to retrieve the assets while you are still alive, or set up the trust so the assets cannot be touched until they are passed on to the designated beneficiary.
Saving Money and Time
It’s true that establishing a trust fund costs more money on the front end. Where it saves money and time is once you pass away. According to estate planning expert David L. Carrier, the assets held in the trust are immediately available to the beneficiary without having to wait for the will to be probated. That can come in handy if family members need those assets to settle final expenses or keep paying the mortgage now that you are gone.
Doesn’t Cover Newly Acquired Assets
Any assets that you acquire after establishing the trust must be accounted for in some other way. That means your estate planning must include provisions for moving those assets into the trust as you acquire them or updating your last will and testament so they will be passed on to whomever you choose.
Trusts Stand Up Well to Challenges
While a trust fund can be challenged, it’s much harder to manage than challenging the provisions in a last will and testament. Many people choose to set up trusts for this very reason.
No Real Savings on Taxes
There is sometimes the belief that placing assets in a living trust will minimize or eliminate tax obligations. In fact, whomever receives disbursements from the trust will still owe the appropriate estate taxes. Transfer of assets through a trust does avoid the cost of probate, but this is negligible in most states. If the reason you want to set up a trust is to keep the tax obligation lower, talk with an expert in estate planning about other legal approaches that will accomplish the goal.
Remember that a living trust is not always the answer. With help from a professional, you can decide if this should be part of your estate planning or if other financial strategies would be best for your and your loved ones.