The Ultimate Guide to Understanding Living Trusts

We believe that some of you have heard of this term, but are not too sure what it represents. In short, a living trust can be defined as a legal document that’s normally utilized in estate planning that’s made while the grantor is still alive.

The living trust enumerates every single asset this person has and who will inherit once the grantor passes away. In these types of situations, living trusts usually assign an individual, known as a trustee who has the duty to assign and supervise assets.

Everything that we wrote above represents the basic information concerning living trusts. Now, if you would like to know more about it, then stay tuned because below, we’ll offer more detailed info. So let’s check it out together!

What Are The Main Types Of Living Trusts?

The truth several living trusts, and each of them comes with its own set of features, however, today, we are going to discuss the two main types, revocable living trusts, and irrevocable living trusts.

So what do we know about them? A revocable living trust represents a trust that can be revoked or revised by the grantor at any given moment during their life. That’s generally a great thing because it provides the grantor with flexibility and enables him or her to make some modifications depending on his/her wishes, demands, etc.

It’s safe to say that a revocable living trust is a very beneficial estate planning tool, due to the fact that it can offer privacy, avoids probate, and enables the grantor to manage their assets even when they’re incapacitated. 

So what’s an irrevocable trust then? It is a sort of trust that’s usually intended for asset protection and decreased federal-state taxes. Its purpose is to allow the grantor to designate assets of their choosing over to the beneficiary.

But unlike revocable trust, this one cannot be altered, or canceled, which is how it got its name. Why is that? Well, that’s because the grantor has basically pledged ownership and authority over the trust, which means that he or she is no longer in control and isn’t allowed to make any changes to the terms of the trust.

If they are longing to do so, they need to ask for permission either from a court order or from the beneficiary. In these types of situations, a third-party member, known as a trustee is the one who supervises and manages this type of trust.

Does A Living Trust Have Any Flaws?

Just like everything else, yes it does. So if you are wondering what are the disadvantages of a living trust, then just keep reading because we’re about to dive further into it. There are a few of them, and they include:

  1. A living trust doesn’t offer good asset protection – Once you make a living trust, creditors can still take your trust assets because you retained control over your property. If by any chance, you are forced to go into a nursing home, the assets that are listed in the living trust will also be taken into account when determining if Medicaid is going to finance your nursing home.
  2. A living trust doesn’t null estate tax – Even though the assets that are part of your living trust don’t go through the probate process, keep in mind that they are still perceived as taxable estate. Something like this can be an issue for people who are rich and who own massive estates that estate tax could be triggered on the state and federal level.

Advantages Of A Living Trust

Now, that we discussed the downsides of a living trust, it’s time to accentuate everything that’s positive about it. 

  • The successor trustee can manage assets if you’re not able to – If you’re scared that at some point you won’t be able to manage your assets you can specify that the trustee is going to do that for you. This is generally a great thing because then your loved ones won’t be obligated to waste their time at court trying to hunt down a conservator or guardian due to the fact that you do not have a trust or an advocate.
  • With it, you are lowering the risk of your wishes being challenged – It is widely known that a will can be contested once a person dies, which is not only emotionally draining for your loved ones, but also very pricey. And in these instances, there’s a risk your beneficiaries won’t receive the assets that were intended for them. Although a living trust can also be contested, it can be a lot more challenging to prove that there were any issues with it which can make it invalid, particularly if it was in effect for a longer period of time.

Do You Need A Living Trust If You Already Have A Will?

At the end of the day, it’s up to you to decide if you want to have a will only, or if a living trust is necessary as well. What we can tell you is that will may not always turn out to be the best possible option for you and your loved ones.

Why is that? Well, that’s because it doesn’t avoid probate once you’re no longer alive. Furthermore, it must be validated by the probate court before it is carried out. Another thing that we would like to add is the fact that since it goes into effect after your death, it means that it provides no protection in case you become incapacitated in any way. 

So what does it mean? It means that the court can take control of every single asset that’s in your possession very easily while you are still alive. And that’s precisely what worries millions of seniors all across the United States, along with their families.

But on a more positive note, if you would like to have something that can be defined as a better version of it, you should simply opt for a revocable living trust.

There are so many details concerning living trusts, however, we tried our best to provide you with the most important information that’s going to help you better understand how everything works. 

Interesting Related Article: “5 Tips: Helping Your Aging Parents Manage Their Finances