A living trust is a legal tool that provides for the management and distribution of assets during a person’s lifetime and after their death. It is a popular estate planning tool that allows people to maintain control of their assets while mitigating taxes and other expenses associated with wills and probate.
How Does a Living Trust Work?
A living trust is established by making a living trust document, which is essentially an agreement between two parties: the trustor (or settlor) who transfers their assets into the trust, and the trustee, who manages those assets. The trustor can be the same party as the trustee.
The trustor names the beneficiaries of the trust, who will receive the assets once the trustor dies. The trustor can also name a successor trustee who will take over control of the trust if the original trustee is unable to fulfil their duties.
Once assets are placed in the trust, the trustee is given legal authority to manage the assets on the trustor’s behalf. The trustee can use the trust assets to pay bills, taxes, debts, and even make investments, as long as it is in line with the trustor’s wishes.
Benefits of a Living Trust
The biggest benefit of a living trust is it keeps the assets within the trust private. Unlike wills, living trusts do not require court-supervised probate proceedings, helping to alleviate the time and expense associated with probate. Additionally, since the trustor names the beneficiaries, they can rest assured their wishes will be followed.
From an estate planning standpoint, living trusts can also help avoid state and federal taxes, as well as provide asset protection. Since the trustor has more control over the assets in a living trust, they can be used for retirement planning, healthcare planning, or even to provide for a special needs person or family member.
Final Thoughts
Living trusts offer estate planning benefits that can help families efficiently manage their assets and provide for the future. As with any estate planning instrument, it is important to fully understand the options available to ensure you make the best decision for your situation.