Living Trusts are widely promoted by \'so called\' investment advisers who often claim that a living trust can protect its owner from probate, guardianship issues, creditors and even help people avoid taxes. Is all the hype true? This article will explore living trusts.
Are Living Trusts The Best Way To Avoid Probate?
Perhaps not. Much of this answer will depend on your personal circumstances, how you manage your assets and your tax rate.
Actually, life insurance, annuities and intelligent beneficiary designations as well as joint ownership arrangements and various types of \'pay-on-death\' accounts may in fact be better when transferring assets to avoid probate situations.
Do Living Trusts Allow one to Automatically Avoid Probate?
No. After a living trust has been signed, it must be funded. This means the assets that one transfers into the trust must be in the trust\'s name in order to avoid probate.
The problem with most trust kits and do-it-yourself books is that they don\'t provide funding assistance - which makes up the bulk of real living trust arrangements.
Do Living Trusts Avoid Legal Guardianship Issues and Challenges?
It can if it uses a properly executed medical power of attorney. If it does, it may be possible to avoid all the family distress, delays and legal expenses of a guardianship case. Often guardianship proceedings can be worse than probate proceedings.
Do We Lose Control Of Our Assets in a Living Trust?
No. Living trusts can be made to be revocable by the owner - meaning the owner can change the terms of the trust and be the trustee at the same time. When one does this however, the owner must be certain to appoint responsible successor trustees in the trust agreement in case of the owner\'s death or disability.
No. Creditors and claimants can still go after the assets in a living trust if the owner of the trust makes it revocable. For the best asset protection vehicle, one would need to set up an irrevocable trust which will make the trust beneficiaries immune from lawsuits and claims against the owner. If the owner in any way controls or benefits from the living trust, so too will the creditors and claimants.
Do Living Trusts Help One Qualify For Welfare or Public Assistance?
No, not usually. The paperwork is a nightmare of bureaucratic entanglements. Federal laws and state laws too have been tightening the standards of maximum assets you can own,maximum income you can earn and previous family transfers of assets - making it very difficult to qualify for assistance. It\'s always worth a try though as laws change all the time at the state level.
Can Living Trusts Save On Income Taxes?
No. Owners of a living trust remain liable for tax due on trust earnings if they are distributed to you. The only exception is if you set up an irrevocable trust in which you are not the beneficiary of the trust. If one the other hand, you set up a revocable trust to maintain control of your assets, then the owners of the living trust must continue to file a personal income tax return as long as they are alive and retain control or receive income from the trust.
Can Living Trusts Save On Estate Taxes?
Perhaps. A living trust that is worded correctly - especially for a married couple - can do wonders to save on estate taxes in the United States. If this is your plan, you would be well advised to spend an hour or two with a qualified estate planning attorney, accountant or other adviser. Be sure to think it through as well as you can . Come with a list of questions to save time.
Can Living Trusts Improve Your Investment Options?
No. Anything a person can do for him/herself can also be done by a living trust. That includes any investment in the world. Just because you have a living trust does not entitle you to any special investment options that are off-limits to private investors.
Do Living Trusts Help Avoid Challenges By Heirs To Your Estate?
Yes. Trust administration after an owner\'s death is less public and offers heirs few opportunities to receive notice or file objections. There are however, a few lawful provisions that protect rightful heirs and creditors in the case of a revocable trust.
Are Living Trusts More Expensive Than Wills?
Yes, absolutely. In fact, you would be wise to include a pour-over will in your living revocable trust. The reason for the higher expense is the amount of paperwork being done to transfer assets into the trust. So depending on the number of assets, type of assets, and provisions to dispose of the assets to the beneficiaries, trust can and do get quite expensive. You should expect this before jumping into one.