In many cases, people create trusts not to help themselves but to support their loved ones in the future. So, it’s only natural to question what happens to the trust when the creator is no longer living. The answer depends on the purpose of the trust. For a trust established to support a loved one
When deciding how to distribute assets to loved ones after your death, you may have assumed that you would use a will. However, many estate planning attorneys recommend creating a revocable living trust instead. In this post, we will explore the advantages this type of trust can provide for you and your loved ones.
How a Trust Works to Transfer Your Assets
A trust is a legal arrangement that enables a trustee to manage and distribute assets to a beneficiary. The person who creates the trust and transfers assets into the trust for the beneficiary is often called the settlor or grantor. As the name implies, the beneficiary is the one who enjoys the benefits of the property in the trust. While the trustee controls the property, they have a duty to make decisions for the good of the beneficiary rather than their own personal interests.
Trusts can be set up different ways to accomplish a variety of purposes. When you want your trust to allow property to pass quickly and easily to your loved ones after your death, your estate planning attorney would create a revocable living trust. It is called a living trust because it begins operating during your lifetime. Since it is revocable, you can change or cancel this type of trust at any time.
With a revocable living trust, you are the grantor, but you also can be your own trustee and beneficiary. That means that once you transfer property into the trust, you can use it the same way you did before it became part of the trust. When you pass away, property in the trust will be managed by a successor trustee and distributed to successor beneficiaries without the need for court supervision.
Critical Differences Between Trusts and Wills
One of the most significant differences between using a will and using a trust to pass property to loved ones is that a will must go through probate, while property transferred through a trust does not. Probate is a legal process that validates the will and ensures that legal requirements are fulfilled and the instructions in the will are carried out. The probate process is public and generally requires between 9-18 months to complete.
When you use a trust to distribute your assets, your successor trustee will satisfy outstanding obligations (debts) and then distribute assets to successor beneficiaries privately and in a much shorter time frame. People transfer their assets through revocable living trusts to make the process easier for loved ones and to better financial support for minor children.
Wills can be less expensive to create but expensive and difficult to administer. Revocable living trusts require more work initially to create and fund, but they are easier to administer.
However, even if you establish a revocable living trust as your primary tool for distribution of assets, it is still wise to have a simple “pour-over” will as a back up. If property happens to get left out of your trust, this document will move those assets into your trust for distribution (through probate, unfortunately).
Advantages of Creating a Trust
Building your estate plan around a revocable living trust rather than a will offers three primary benefits. First, your loved ones can avoid dealing with the headaches, delays, and expense of the probate process. They have greater leverage against creditors and can receive property quicker and easier.
Second, your revocable living trust can include provisions that allow your successor trustee to manage your financial affairs if you become incapacitated. If an accident or illness rendered you unable to make or communicate decisions, your designated successor could step in to handle matters without the need to petition the court for guardianship.
Third, transferring assets through a trust rather than a will provides a measure of privacy. When a will is admitted to probate, it becomes a matter of public record.
If you are interested in other benefits such as estate tax minimization, asset protection or preserving eligibility for government benefit programs, your attorney can create an irrevocable trust to transfer property while accomplishing additional goals.
Reduce Future Stress by Creating a Trust for Your Family
Trusts offer significant benefits when you are building a plan to protect your loved ones. A revocable living trust can enable your family receive property without the need for probate and provide for management of your property in case of incapacity. Other types of trusts can reduce or eliminate estate taxes or meet your needs in other ways.