While most Baby Boomers have wills in place, millions of soon-to-be-retired Americans haven’t yet established estate plans and made critical decisions about future care. Many also don’t appreciate the sheer diversity of planning instruments available to ensure their wishes, protect their assets and prevent fighting among beneficiaries.
A living trust, for instance, provides a slate of advantages, including pre- and post-death benefits. Creating this document can also help your estate avoid probate, a lengthy process designed to distribute assets equitably to charities, creditors and beneficiaries.
In this post and a subsequent one, we will review seven important ideas about living trusts, so you can better understand their powers and limitations in the context of your plan.
- Definition of a Living Trust
A revocable living trust, so called because it’s set up while you are living, designates someone to oversee the handling of your assets. It is “revocable” because you have the right to change it at any time for any reason, as long as you are mentally capable of doing so. Upon your death, it becomes irrevocable, and it cannot be changed.
A trust involves three groups of people: you, the creator of the trust; one or more trustees who handle the trust; and the recipients. While you’re alive, you and your spouse can serve as trustees in order to retain full control of all assets. As a trustee, you have the right to continue to do what you want with your property or assets, including:
- Sell it
- Invest it
- Exchange it
- Rent it
- Or any other legal options.
- Differences Between a Will and a Living Trust
Both a will and a living trust contain inheritance instructions regarding who receives what, when they receive it and how assets should be transferred. People often use trusts to avoid probate, to stay out of court and to ensure privacy. A living trust remains off the public record except in rare cases; wills are always open for public scrutiny. Trusts serve many beneficial purposes, but wills cost less and are usually less involved.
- Complications if You Die Without a Trust or a Will
If you die without a trust or a will, your assets likely pass to your spouse, then to your children, and then to your next closest heirs, according to the order established in your state. In addition, the state could designate someone whom you do not want to act as the legal guardian of your children or to handle the distribution of your assets.
Our next post will address four other critical ideas you need to understand about living trusts. For immediate help planning your future, please reach out to us for a confidential consultation at (800) 827-7784.