What is a living trust?
A living trust is a legal document that outlines a person’s desires with regards to their assets, dependents, and heirs. It is similar to a will but differs in some important ways. Wills only become effective after a person dies and the the will enters probate. However, a living trust avoids probate allowing the designated successor trustee to carry out the instructions upon a person’s death or incapacity.
Are there different types of living trusts?
There are two general types of living trusts:
Revocable Living Trusts
This type of trust allows a person to transfer their assets into the ownership of a trust. They retain control of their assets as the trustee of their revocable living trust. The person can alter or revoke the trust at any time.
Upon death, the person’s assets pass directly to their beneficiary, avoiding probate. In some circumstances, a revocable trust can minimize estate taxes.
Irrevocable Living Trusts
This type of trust allows a person to permanently give away their assets while they are still alive. By relinquishing control and interest in these assets, they are no longer considered part of a person’s estate, thus avoiding estate taxes. These types of living trusts are used rarely, only when a person is ultra-wealthy.
What are some other advantages and disadvantages of living trusts?
- Helps in managing your affairs
- Protects your privacy (typically no public record required)
- Easy to create and change
- Greater control of assets
- Good for family and assets (generally trustees do not have to meet state residency requirements)
- Time and costs to set up the trust