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Clients often ask me if they should own their assets in the form of a living trust. The answer, as with most things, is… it depends.
A living, revocable trust is created during your lifetime. It allows you as the trustee to make changes to the trust at any time. These changes can include what assets are in the trust, how assets get distributed in the future, and who the beneficiaries of the trust are.
Many people can avoid the trouble and expense of establishing a trust by keeping their finances simple and using beneficiary designations on retirement plans and other accounts that will determine who gets your assets when you die.
A trust isn’t for everyone, but they can offer several benefits. In some cases, they may be a necessary and important part of your estate plan.
Below are five reasons why you may want to include a revocable, living trust in your estate plan.
Simplify the process of transferring your assets to the right people when you die. This is the most important reason for most people to place assets into a revocable, living trust.
When you die, people need to know who the new, legitimate owners of your assets are. For example, if you have a bank or brokerage account in your name that doesn’t list a beneficiary, the bank or brokerage firm will need to determine the new owner of your account.
If you own many types of assets such as different bank accounts, multiple brokerage accounts, some land, etc., and there is no beneficiary on these accounts, it gets complicated quickly. Owning these assets in the trust simplifies the process.
Avoiding probate. One of the primary benefits of a revocable living trust is that assets placed in the trust can avoid the often time-consuming, expensive, and public process of probate. The probate court’s role is to determine ownership of your assets after you die. Owning assets in a trust or establishing specific beneficiaries avoids probate because it has already determined ownership of your assets since, legally speaking, the trust is the owner of the asset. You or you and your spouse are trustees (and possibly beneficiaries) of the trust.
Imagine in the example above if you owned several different accounts without beneficiaries or joint owners, each of those accounts would have to go through probate.
Privacy. Unlike a will, which becomes a public document during the probate process, a trust allows your estate to remain private, as it doesn't go through probate.
Flexibility. As the creator (grantor) of the trust, you retain the ability to make changes to the trust during your lifetime, including adding or removing assets, changing beneficiaries, or even revoking the trust entirely. A trust may be the legal owner of the asset, but as the grantor of the trust you still retain control over everything just as you would if the asset were still in your name.
Incapacity. A revocable living trust can provide a mechanism for managing your assets in case of your (or your spouses) incapacity. If you become unable to manage your affairs, a successor trustee can step in and manage the trust assets on your behalf.
Recently I met with an older married couple. For many years Mom managed the personal finances for their family and had done an excellent job. Mom and Dad also had multiple assets across multiple sources. Some were in her name. Some were jointly owned. Some were her husband’s assets.
Her husband, however, was beginning to show signs of dementia. If she were to die, he still needed access to their financial assets to pay his bills but may not be competent to do so on his own. Establishing a trust now would allow her to retain control of her family’s assets, would establish a person (or persons) who could take over if she was unable to do so in the future, and would still provide Dad full access to their financial resources for his care and financial needs if she were to die or become incapacitated.
Trusts do have some considerations.
They can be expensive to set up. Setting up a revocable, living trust can involve legal and administrative costs. If you truly need a trust, it is money well spent, but good attorneys aren’t cheap.
Management. While you can retain control over the assets in the trust, managing these assets within the trust structure will require some effort on your part. You will need to transfer assets into the trust's name and ensure that any new assets are also titled appropriately. As much of a headache as it may be, its way easier to transfer assets into a trust while you are alive than it is for someone else to sort it out through the probate process after you die.
Complexity. Trusts are more complex to set up and maintain compared to a simple will. You will need to work with an attorney to establish the trust correctly and ensure it aligns with your intentions. Beneficiary designations and joint ownership may meet your needs without requiring a trust.
Taxes. A revocable living trust does not offer significant tax advantages. It won't help you avoid income taxes or provide substantial estate tax benefits. If minimizing taxes is a primary goal, other estate planning tools might be more suitable.
If your estate planning goals include simplifying the process of transferring and managing your assets as easy as possible after you are gone, a revocable, living trust may make sense.
Talk to your financial advisor or estate planning attorney to see how a trust might benefit your estate plan.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.