When it comes to estate planning, one of the most versatile tools available is the living trust. It offers an effective way to manage your assets during your lifetime and ensure a smooth transfer to your beneficiaries after you pass. Whether you’re seeking to avoid probate, maintain privacy, or ensure financial security for loved ones, a living trust can be a valuable addition to your estate plan.
Let’s go over some of the basics of what a living trust is.
What Is a Living Trust?
A living trust is a legal document that holds and manages assets while you are alive, with instructions on how those assets should be distributed after your death. The term “living” indicates that the trust is established while you are still alive, unlike other types of trusts that come into effect after death.
A key feature of a living trust is that it allows the person creating the trust (known as the grantor or trustor) to retain control over the assets and make changes during their lifetime. This is especially true in the case of a revocable living trust.
Types of Living Trusts
Living trusts fall into two main categories:
- Revocable Living Trusts
A revocable living trust allows the grantor to make changes, add or remove assets, or even terminate the trust entirely during their lifetime. This flexibility makes it the most common type of living trust for estate planning. - Irrevocable Living Trusts
Once an irrevocable living trust is established, the grantor relinquishes control and cannot modify or dissolve the trust without the consent of the beneficiaries or a court. This type of trust is typically used to reduce estate taxes or protect assets from creditors, but it offers less flexibility than its revocable counterpart.
Common Misconceptions About Living Trusts
- Does a Living Trust Reduce Taxes?
A revocable living trust does not provide tax benefits during your lifetime since you retain control of the assets. However, it can be paired with other estate planning tools for tax efficiency. - Are Living Trusts Only for the Wealthy?
While they are beneficial for high-net-worth individuals, living trusts can be equally valuable for those with modest estates, particularly if avoiding probate or ensuring privacy is a priority. - Do I Still Need a Will?
Yes. A pour-over will complements your living trust by covering any assets not transferred to the trust during your lifetime. It ensures all your assets are managed according to your wishes.
Is a Living Trust Right for You?
A living trust can simplify estate planning, provide peace of mind, and reduce stress for your loved ones. However, it’s not a one-size-fits-all solution. A quick visit with our estate planning attorney will help you determine if a living trust aligns with your goals and financial situation.
