What You Need to Know about Living Trusts
A trust is merely an arrangement to have another person, a trustee, manage property and assets on your behalf. Typically, this is done with an eye towards the benefit of a third party, a beneficiary. When you create a trust, you are no longer the owner of the various assets in the trust. However, you create a set of guidelines as to how these assets are to be managed when you set up the trust. In many cases, you will also serve as the initial trustee and maintain control over the management of the trust, although this does not have to be the case. In short, a trust is a way to manage an entire group of assets as a single unit, with the intent of eventually distributing those assets to the chosen beneficiaries once you have passed away.
What is a Living Trust?
A "living" trust simply means that the transfer of property and assets into the trust happens while you are still alive. It is a way to plan the dispersal of your estate ahead of time by planning ahead for which beneficiaries will receive which specific parts of your estate once you pass away. Until you pass away, assets in the trust will be managed by a trustee you have selected, according to guidelines you set out. Both the planning and managing of the living trust is done for the benefit of the beneficiaries. Upon the event of your death, these beneficiaries will receive your assets in whatever way you choose.
When you establish a trust, you must determine whether it is an irrevocable or revocable trust.
What Is an Irrevocable Trust?
An irrevocable trust is a trust in which you place your assets and are unable to take them back out. These assets are no longer owned by you but, rather, are owned by the trust.
What Is a Revocable Trust?
A revocable trust, in contrast, means that you have the ability to remove assets from the trust at some point in the future and may even dissolve the trust if you choose to do so. Typically, a revocable trust is set up with terms that dictate that it become an irrevocable trust in the event of your death or in the event that you become incompetent.
Both types of living trusts, irrevocable and revocable, have benefits and drawbacks, and experts disagree as to which is the better option. It is advised that you speak to an attorney who specializes in trusts and living trusts to discuss which option is best for your specific needs and wishes.
Like a will, a trust is helpful because it removes some of the emotional burden from your loved ones upon the event of your death. They will not have to make decisions about the dispersal of your assets during what can only be a particularly emotional time. Decisions have all been made ahead of time, by you. Potential disputes among family members may be avoided, and in some cases, estate taxes may be greatly reduced by your setting up some sort of trust for your loved ones.