Living Trust

In addition to avoiding probate, a living trust offers a number of benefits. It does, however, have some disadvantages that may make it unsuitable for your estate planning needs.

 

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How Does An Asset Protection Trust Work?

An asset protection trust shields an individual’s assets from creditors by storing them in a trust vehicle. You can find the strongest protection from creditors, lawsuits, and judgments against your estate with an asset protection trust. An APT may even deter costly litigation before it begins, or it can influence the outcome of settlement negotiations..

Living trusts: What are they?

Living trusts are legal documents that are created during an individual’s lifetime (the trustor or grantor) in which a designated person, the trustee, is given responsibility for managing the assets of that individual. The purpose of a living trust is to provide for the easy transfer of the trust creator’s assets while bypassing the often complex and expensive probate process.

In a living trust agreement, a trustee holds legal possession of assets and properties that flow into the trust.

 

Living trusts and how they work

Trusts are managed by trustees, who typically have a fiduciary duty to manage the trust responsibly in the best interests of the trust’s beneficiary or beneficiaries designated by the trust settlor, also known as a grantor. Upon the death of the grantor, these assets pass to the beneficiaries in accordance with the grantor’s wishes as outlined in the trust agreement.

A living trust, however, is not subject to probate while the settlor is alive and its beneficiaries are not required to go through a court process when the settlor dies or becomes incapacitated.

Living trusts: types and uses

 

Trusts can be irrevocable or revocable. When establishing a living revocable trust, the settlor can designate himself or herself as trustee and take control of assets within the trust. Due to this stipulation, the assets in the trust remain part of the settlor’s estate, meaning the individual may still be liable for estate taxes should the estate exceed the estate tax exemption at the time of death. 2 The trust settlor may also amend trust rules at any time. This means the trust settlor is free to change beneficiaries or undo the trust altogether. A beneficiary can be changed or a trust can be undone at any time by the settlor.  

An irrevocable living trust allows the settlor to relinquish some control over the trust. However, the individual would also reduce their taxable estate since the trustee becomes the legal owner. A trust agreement for an irrevocable living trust establishes the named beneficiaries, and the settlor cannot amend that agreement. 

Asset Assignment in Living Trusts

It is possible for a living trust to be named the beneficiary of certain assets that would otherwise go directly to the named beneficiary regardless of what is written in a will. Examples include employer-sponsored retirement accounts like 401(K)s, individual retirement accounts (IRAs), life insurance policies, and certain bank accounts such as Payable on Death (POD) accounts.

What is the cost of a living trust?

It is usually necessary to hire an attorney to establish a living. Legal Zoom estimates that in the U.S., a revocable living trust will cost, on average, $1,000-$1,500 for an individual and $1,500-$2,000 or more for a couple. An irrevocable trust may often cost more because of its greater complexity. Costs will vary by location and law firm.

What Are Some of the Disadvantages of Living Trusts?

In addition to their cost, the downsides of trusts will depend on whether it is a revocable or irrevocable trust-each with its own purpose. Revocable trusts are not sheltered from creditors or tax authorities, which limits their usefulness for protecting assets while one is still alive. Trusts that are irrevocable forfeit all ownership and control of the assets they hold, along with very little flexibility in how the trust may be run after it is established.

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