A living trust is a flexible tool you may use in creating your estate plan. A living trust may be used to delay the distribution of assets after your death, avoid probate, or minimize estate taxes, depending on how it is drafted. A living trust also acts as an asset protection device to keep your assets safe.
Back to the topA living trust and a last will function together. A living trust is only part of a complete estate plan. There are valid reasons for keeping some of your assets outside of the trust. Alternatively, you may acquire assets in the future that you forget to transfer to the trust. When you die, these non-trust assets will need to be transferred to the living trust. A pour-over will will take any assets kept outside of the trust during your lifetime and put them in your trust at death.
Back to the topThe living trust document we provide includes a provision that the assets of the trust are not subject to the claims of creditors of any beneficiary. In other words, no one can sue a trust beneficiary and collect a judgment from trust assets before the beneficiary is entitled to receive them under the terms of the trust.
Back to the topYes. The function of probate is to collect all the assets of a decedent, settle debts and claims of the estate, and transfer the net assets to the proper beneficiaries. The process is administered by a probate court judge and is a function of state law. By creating a living trust and transferring assets to it during your lifetime, those assets are not regarded as belonging to you when you die. Legally, those assets belong to the trustee of the trust. Since those assets do not belong to you, they are not part of your estate when you die, and there is no need for the probate court to transfer those assets to anyone. They have already been transferred prior to your death
Back to the topIn whatever way you provide in the trust agreement. In the document we prepare for you, there are three basic options for asset distribution: 1) everything to your spouse or partner when you die; 2) all of the income of the trust to your spouse or partner during his or her life, and then everything to your descendants when your spouse or partner dies; or 3) everything to your descendants when you die.
Back to the topDuring your lifetime, any living trust created by you is disregarded for tax purposes. That is, the income of the trust is reported on your personal income tax return. A living trust does not file its own separate tax return until after you die. Therefore, typically, a person would not apply for a taxpayer identification number for a living trust until after the death of the grantor.
Back to the topPossibly. Some common examples include insurance policies, retirement plans, and jointly held assets. Both insurance policies and retirement plans have a beneficiary designation procedure, which normally allows you to name a primary and a secondary beneficiary. People often name a spouse or children as primary beneficiaries and their living trust as a secondary beneficiary.
There may be reasons to avoid naming the trust as a beneficiary at all, such as when you want a particular benefit to be distributed in a different manner than your trust assets. Jointly held assets usually don’t need to be transferred to your living trust because the joint owner gets those assets in full automatically by operation of law. However, joint assets are not sheltered from creditor claims. If you have questions about what assets to put into your living trust, check with your financial advisor.
Back to the topA living trust is also disregarded for estate tax purposes. Just because assets held in trust avoid probate does not mean they avoid estate taxes. The assets of your living trust will be included in your estate for the purpose of determining if any estate taxes are owed.
It is possible for a pair of living trusts to be set up to minimize estate taxes for married couples, but this makes for a highly complex and technical living trust agreement which is only required for people having an estate in excess of the federal unified credit against estate taxes. The amount of this credit is $2,000,000 in 2007 and 2008, and $3,500,000 in 2009. The living trust agreement we provide does not include any estate tax planning, so it is not designed for people who have estates larger than the credit against estate taxes.
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