Understanding Living Trusts: Types, Pros and Cons, and Costs
A living trusts by One Pacific Trust are a legal arrangement for handling your assets during your lifetime and distributing them upon death according to your desire. There are multiple advantages linked with such trusts; therefore, these are helpful in avoiding probate and maintaining privacy.
In addition, it will provide a smooth transition in the management of assets in case of any disability. But in order to make such a decision it is necessary to have knowledge regarding what types are available, their disadvantages and advantages, and the costs associated with these.
What is a Living Trusts?
A living trusts are another term for an inter vivos trust, which is simply a trust that is created during the lifetime of a person to hold property. The person who decides to create such a trust is referred to as a grantor or settlor, and the management of the trust would be handled by someone called the trustee-which may, in fact, be the same person as the grantor, or another different person altogether-and the assets held in trust would be distributed to beneficiaries based on the requirements provided by the grantor.
Living trusts are flexible, thus allowing the grantor to make changes or even revoke the trust during their lifetime. Upon the death of the grantor, this trust automatically becomes irrevocable; its terms can no longer be changed, and the assets will be distributed in accordance with the instructions in the trust.
What is a Living Trusts?
Types of Living Trusts
There are two major types of living trusts: revocable and irrevocable.
1. Revocable Living Trust:
By far the most common type, the revocable living trust permits the grantor to retain control over the principal of the trust. The trust may be modified, amended or revoked at any time during the lifetime of the grantor. The trust thus offers flexibility and can often be used effectively in estate planning. Upon the death of the grantor, the trust becomes irrevocable and the corpus distributed to the beneficiaries without going through probate.
2. Irrevocable Living Trust:
As the name suggests, an irrevocable living trust cannot be modified or revoked, except in certain circumstances, once it has been created. The ownership and control of such assets as were placed into this form of trust are given up by the grantor. This is usually used for tax planning purposes in that estate taxes would be reduced, as well as protection against creditors. The negative side, to some individuals, would be the no-control aspect.
Types of Living Trusts
Living Trusts Pros and Cons
Like every other estate planning tool, living trusts pros and cons also come with their share of advantages and disadvantages. Understanding these can help you to better make your own decision.
Pros of Living Trusts:
1. No probate:
One of the biggest advantages of a living trust is that it helps your estate avoid probate altogether. Many find probate to be a very time-consuming, costly, and public process. A living trust allows your family to bypass this altogether by distributing one's assets in a much quicker and private manner.
2. Privacy:
Because the living trust does not have to go through probate, the details of the trust and who gets what remains private. This is in contrast with a will, which is made public at the time of probate.
3. Continuity in Case of Incapacity:
A living trust allows for the management of your assets without problems if you should happen to become incapacitated. Any successor trustee you name can immediately take over the running of the trust, without needing interference from a court, and make sure that your affairs are carried out just the way you would have done.
4. Flexibility-if it's a revocable trust:
With a revocable living trust, you have so much latitude with changing the terms and adding or removing assets, even beneficiaries, throughout your life. This can be very advantageous in keeping up with such life events as marriage, divorce, and births of children.
Cons of Living Trusts:
1. Cost of a Living Trust:
One of the key disadvantages associated with a living trust relates to costs incurred in its setup and ongoing administration. Creating a living trust can indeed be far more expensive than drafting a will, sometimes between $1,500 and $3,000 or even more, depending on the complexity of the estate and attorney fees. Additionally, ongoing fees may be payable for the administration of the trust, mostly if a professional trustee is being engaged.
2. Tax Benefits Not Applicable to the Revocable Trusts:
A revocable living trust does not extend any immediate tax benefits since whatever is contained in the trust is still the grantor's estate. As such, no income or estate tax advantages are available to the grantor during his lifetime.
3. Difficulty in Funding the Trust:
For a living trust to function, the assets need to be transferred into the trust, also known as funding the trust. This can become tedious, burdensome and lengthy for individuals with sizable or extensive portfolios of assets. Unless transferred accordingly, there is a very good chance that any assets might still face probate.
4. Limitations of Irrevocable Trusts:
Whereas the irrevocable trusts offer immense tax benefits and creditor protection, one finds that there are major drawbacks to accepting them. A grantor has no control over whatever property is placed in the trust, and making changes if the circumstances change is difficult. The lack of flexibility certainly can become a deal-breaker for many individuals.
Living Trusts Pros and Cons
Living Trust Cost: Is It Worth It?
However, the living trust cost is somewhat higher, but it is worth considering. Because while the upfront cost of creating a living trust may be higher than drafting a will, possible savings in probate costs, maintaining privacy, and peace of mind associated with knowing your assets will be managed according to your wishes may make an investment in a living trust a very worthy one.
Living Trust Cost: Is It Worth It?
A living trust can be a potent estate-planning tool for the heavily asset-laden, the familial situation that is complicated, and for those who would want to keep their matters private with continuity. However, any estate planning attorney will express the need to have the trust property and duly funded, properly structured, with careful attention to the overall estate planning goals of the client.
Conclusion
Living trusts by One Pacific Trust are a powerful estate planning tool that allows individuals to manage their assets during their lifetime and distribute them to beneficiaries without going through probate. By setting up a living trust, you retain control of your assets and can make changes as needed. Upon your death, the trust ensures a smooth transition of wealth to your heirs while maintaining privacy and minimizing delays. Living trusts also offer potential tax benefits and provide protection for your estate. Overall, they offer a flexible and efficient way to manage and protect your assets during and after your lifetime.