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What is a living trust and how can it be established?
Have you ever thought about who would manage your family's finances if you were unable to work due to illness or injury? Are you adding another will on your to-do list? When it comes to your financial wellbeing, you cannot afford to wait for the future to prepare.
Building a comprehensive estate plan starts with figuring out what tools you need. While a will takes care of your assets after you die, a living trust can help you manage your assets more effectively throughout your life and beyond.
How a living trust works
A living trust account, also known as an "inter vivos trust", is a legal document that describes how you would like to manage your assets before and after your death. The person who makes the trust is called a settlor or grantor. The person who manages the assets in the trust is known as the trustee.
You can act as a trustee and appoint a successor to take over after your death. If you are unsure of how to manage the trust yourself, you can choose to have someone else act as the trustee. The purpose of the trust is to provide for your beneficiaries, which may include your spouse, children, siblings, or anyone else you wish to leave your wealth to.
Establish a trust
Creating living trust is a two-step process. First, you create the deed of trust or the trust agreement. You can do this yourself using an online resource like LegalZoom. If you aren't comfortable building a trust on your own, a qualified estate planning attorney can help you through the process.
Setting up your own trust is less costly and can be appropriate if your assets are relatively small. A Basic Living Trust package from LegalZoom starts at $ 249. However, if you have significant assets, own a business, or your estate is complex, hiring an attorney is wise, but that could cost you $ 1,000 or more.
Financing the fund
Once the trust is built on paper, you need to fund it. It simply means that you are transferring any assets you wish to include in the trust to the control of the trustee. For example, you can transfer real estate, boats, bank accounts, stocks, bonds, works of art, antiques, stamp collections, coin collections, or other valuables to the living trust.
The transfer of real estate usually involves the transcription of the property. It does this by creating a new deed for the property on behalf of your trustee. For intangible assets, such as bank accounts or stocks, you can either transfer ownership of the account to the trustee or open a new account on behalf of the trustee, depending on the financial institution's policies.
When you need a living trust
If you don't have many assets, a will alone is enough to meet your estate planning needs. A living trust is completely separate from a will and should complement it, not replace it.
There are certain scenarios where establishing a trust relationship has additional benefits beyond what a will can do:
- If you want to avoid discount . Estate refers to the legal process by which your assets are distributed based on the instructions in your will (or under state inheritance laws if you are not in a will). Estate can take months or even years to complete if you have a large estate or your beneficiaries dispute the terms of your will. Estate fees are deducted from your estate before your property is distributed and the contents of your will become public knowledge. Depending on how complex your estate is, probate proceedings can cost you hundreds or even thousands of dollars in legal and legal fees. Having a living escrow account allows you to avoid discounts on the assets held in the trust, reduce your overheads, and give your recipients more privacy.
- When you have young children . While no one wants to think about dying, you need to know that your children will be looked after should something happen to you and your spouse. Living trust gives you the power to appoint both a legal guardian and a conservator for minor children. A parent or guardian is responsible for day-to-day maintenance and a conservator looks after their finances through to adulthood. You can use a will to designate a guardian or conservator, but he or she is usually subject to judicial oversight. Leaving money in a will for children allows them to receive their inheritance once they come of age. With a living trust, the restorer is not under the control of the court and it is up to you to decide what age and under what conditions children have access to the trust.
- When you become incapable . If you are injured in an accident or have a stroke that leaves you in a vegetative state, household finances can be the last thing your family thinks about. With a living trust, the trustee will continue to act on your behalf if you cannot make financial decisions that will relieve your loved ones. Trusting in place can also help avoid an adult conservator, which effectively means the court will appoint someone to manage your financial affairs.
What a living trust cannot do
There are certain restrictions on what living trust can be used for. For example, you cannot use a living trust to provide instructions on your medical care should you become incapacitated or terminally ill. However, you can do this using a will to live also known as a health prevention guideline. If you are concerned about how your medical care and finances will be handled in the event of illness or injury, your attorney can help you create a health prescription while building the living confidence.
Also, a living trust doesn't necessarily protect your assets from creditor claims - your creditors can still come after the assets contained in the trust as they can be returned to your control at any time.
Whether you need living trust ultimately depends on your individual financial situation and the needs of your family. No one can predict the future, but planning ahead can give you much-needed peace of mind. Living trust may not be for everyone, but weighing the pros and cons can help you make an informed decision not only for yourself but also for your loved ones.
When establishing a trust, be sure to update it whenever you experience significant life changes, such as: B. the birth of a child or a divorce. You may also need to make adjustments if your financial situation changes because you acquire new assets or sell a property in the trust.
Have you taken any steps to build living trust in the event you become incapacitated?
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