Introduction: What is a Living Trust?
A living trust is similar to a will, but it prevents a court from controlling your assets in case you are incapacitated. It helps avoid probate upon death and can also control all assets even when you are no longer there.
A will can only be enforced once you pass away and does nothing in case you become incapacitated either mentally or physically. This means the court could come in and use your assets before death even if a will specifically states where the said assets are to be distributed because you are grievously ill or not in the right mind.
If you are afraid this is what’s going to happen to you, then you may acquire a living trust so that you can control your own assets no matter what happens and allows you to avoid probate.
A trustee has full control of their trust and can do whatever they want with it: sell the assets, buy more assets, alter the details of the trust, or even cancel it. Even tax returns remain the same. The only thing that changes is the name placed on the title of the assets.
It is not that hard to move assets into a trust. You would only need the help of a licensed professional such as an attorney, financial adviser, trust officer, or insurance agent.
Examples of items that can be placed in a trust are art, clothes, furniture, and jewelry, but these are items that will not have a title. In cases when you put assets such as bank accounts, insurance, investments, real estate, etc. you will have to change the title to indicate your name and “trustee under trust dated (month/day/year)” instead of just your name.
Legally, it means you are no longer the owner of the assets you are putting into the trust—the trust owns them now—but since you control the trust itself, you still have jurisdiction over them, and they are still technically “yours”.
- You are ensured the utmost privacy
- Beneficiaries receive assets quicker
- The court can’t control the inheritance of minors
- Estate taxes are either reduced or eliminated completely
- The court can’t control your assets in cases of incapacity
- A living trust prevents your assets from going through probate
- Disgruntled heirs will find it harder to contest the distribution of assets
- Your assets can be kept in a trust until beneficiaries are at the right age to inherit them
- Beneficiaries or dependents who require special treatment or have special needs are protected
- Your assets are unified in one professional plan that is cost-effective, flexible, and easy to cancel should the need arise
- It ensures an inheritance goes to the right person and prevents the distribution of mistaken inheritances
Probate is a legal and public process wherein the court distributes your assets as stated in your will after they ensure any debts leftover are paid in full. The process can take anywhere between 6 months to 2 years but can even extend to a longer period of time.
During probate, assets are frozen so that the executor and the court can take inventory. They make decisions on what can be sold and/or distributed so if beneficiaries of the will need money, they must ask for a living allowance that has the chance of being denied.
Family members have no control over the costs associated with probate, the length of time it’s going to take, and which pieces of information are released to the public.
Because of the public nature of probate, anyone can take a look at your assets and who is in line to receive them. It can encourage other heirs or disgruntled family members to contest the will and attract unwanted solicitors.
On top of that, the costs of probate can rise and must be paid off before the family or other beneficiaries of the will can receive anything. Any land owned in another state could mean multiple probates done according to that state’s laws. A Michigan estate planning attorney can help you resolve issues with your estate to avoid probate.
Living Trust vs. Living Will vs. Joint Ownership
A living trust is not similar to a living will because it focuses more on financial matters. Meanwhile, a living will is for matters involving medical decisions such as extraordinary measures that must be taken in case of incapacity or the need for life support.
Assets under a joint ownership are fully passed down to the surviving joint owner(s) upon the death of the other owner without the need for probate. However, if both owners are deceased and no new joint owner is added, then the assets still have to undergo the process of probation.
After the probation of assets under a joint ownership, the heirs may then receive them. However, a co-owner can make a play for your share of assets. The likelihood of either one of the co-owners being involved in a lawsuit against a creditor interested in acquiring the assets also increases.
Overall, a living trust is the most trustworthy option because it ensures your assets are not seized by anyone except their intended beneficiaries.
It is not that hard to start moving your assets into a living trust to prepare for what may happen in the future. It comes with a lot of benefits and ensures maximum privacy. Creating and funding a living trust may allow for probate to be bypassed, thus lowering fees and having a much smoother process to transfer assets to beneficiaries.
It is advised that even though you’ve set up a living trust, you should still have a “pour-over” will in case there are any assets that you forgot to include in the trust. It may go through court ownership temporarily because of probate, but it should be returned to the trust eventually.