When you want to retain the right to dissolve the trust
The “revocable living trust” (“living trust”) can be created with a legal document that includes instructions setting forth who you want to leave your assets to, in addition to who will manage your assets and how they will be managed if you become unable to manage them. A living trust allows you to maintain control of your assets while making sure the assets are managed according to your wishes upon death or incapacity. In addition to flexibility and control, the living trust will help you preserve your privacy, something that the probate process does not necessarily allow.
When you establish a living trust, the next step will involve transferring assets into the trust, such as bank accounts, real estate, and stocks. After the transfer, these assets still remain in your control. Furthermore, transferring assets to your living trust will not trigger federal gift, estate, or income tax consequences because, although the assets are held in the name of the living trust, you are still considered the owner for tax purposes. This may not necessarily be the case, however, under the laws of your state of residence.
Advantages of the Living Trust
Let’s look at some of the advantages of having a revocable living trust in place:
- Avoidance of Probate – Probate is the legal process for transferring your property when you die. Establishing an RLT can be especially useful in avoiding expensive multiple probate proceedings when you own real estate or other property in several states. Assets named in trust avoid the costly courts and typically take precedence over the property designated in your will.
- Changeable or Revocable – The living trust allows you to make changes (or amendments) to the trust document while you are still alive.
- Privacy Preservation – Trusts allow the transfer of your personal assets to remain private within the constraints of the trust document. The probate process may expose your estate to the public.
- Eliminate Challenges to the Estate – The standard will can create family disputes at your death and be challenged for alteration by any member of your family. By using a trust, you can specifically disinherit anyone who posts a challenge to your wishes upon your death.
- Segregation of Assets – This is useful for married couples with substantial separate property that was acquired prior to the marriage. The trust can help segregate those assets from their community property assets.
- Assignment of Durable Power of Attorney/Guardianship – A living trust can be used to help control a guardian’s spending habits for the benefit of your minor children. It can also authorize another person to act on your behalf if you become incapacitated and need someone else to make medical decisions for you.
- Continuous Management – This allows the wealth that you’ve accumulated to continue to grow for multiple generations by using a professional trustee to manage your property. You can limit the amount of withdrawals to income only, with special emergency provisions if you wish.
- Estate Tax Minimization – Provisions can be included in the trust documentation to transfer wealth by establishing a credit shelter trust in the event of your death. The CST is a very effective tool to help reduce estate taxes for large estates that exceed the combined estate tax exclusion amounts.