Why you should get a Living Trust
A revocable living trust enables you to avoid probate, keep your estate private, and reduce or eliminate estate taxes, as well as ensures your assets quickly transfer according to your wishes upon your death. With a revocable living trust, no court action is involved, and the property is distributed privately. Setting up and funding a revocable living trust enables you to effectively pass your assets to your heirs, and it is one of the most loving things you can do for your family.
Other documents frequently used in conjunction with a Living Trust include:
- Last Will and Testament
- Living Will
- Medical Power of Attorney
- Durable Power of Attorney
- Irrevocable Life Insurance Trust (ILIT)
A Living Trust provides no income tax savings and, for tax purposes, it is as if they do not exist. No federal tax ID number is required. You are not required to file a living trust with the state, and tax returns are also not required. Just as it is ignored for income tax purposes, a revocable trust is ignored for creditor purposes and, thus, does not provide any protection of assets from judgment creditors.
Funding The Trust
A living trust is revocable, which means you can amend, alter, or cancel the trust at any time prior to death. Once the trust has been created and signed, you need to fund the trust. Funding the trust is the process of transferring the ownership of your assets to the living trust. For assets with title (bank accounts, cars, real estate, stock accounts, etc.), you change the ownership of the asset to the name of the trust. For real estate, new deeds are filed with the county recorder where the property is located. Bank accounts and brokerage accounts are transferred by simply changing the name on the accounts to the name of the trust.
For assets without a title (jewelry, art work, antiques, furniture, etc.), you simply list the items on the Schedule “A” of the Living Trust. On the schedule “A”, you would write a description of the items such as: American Heritage billiard table; brown leather couch, love seat, chair and ottoman set; limited edition giclée painting “Symbols of Freedom” by Thomas Kinkade; diamond and platinum wedding ring.
You can also fund the living trust indirectly by transferring your interest in other entities. For example, if you hold your assets in FLPs and LLCs, the living trust can hold your interest in these entities.
Is it very important that you fund your living trust with all of your assets because any asset that is not in the living trust when you die will have to go through probate.
In addition to avoiding probate, a living trust can reduce or eliminate estate taxes through the use of bypass trust and marital trust tax provisions. These provisions provide that assets held in a trust for a spouse or child will eventually pass to other heirs and, thus, save estate taxes.
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