Is a Living Trust Right for You?
Trusts can be useful for protecting and transferring your assets. The key is understanding when a trust is appropriate for your individual situation. If you are considering a trust, please call 216.225.9181, Email, or use the contact form to schedule a consultation. After assessing the nature and value of your assets and liabilities, and discussing your goals for your property's use during your lifetime and following your death, you can make an informed decision.
What is the purpose of a living trust?
Is use of a living trust the only way to avoid probate?
Will I save estate taxes by avoiding probate?
Will a living trust save income taxes?
What are the advantages of a living trust compared to probate?
What are the disadvantages of a living trust compared to probate?
Who should prepare my living trust?
What is a "living" trust?
A "living" trust is a trust that can be amended and/or revoked by the person who created the trust, i.e. the "settlor". The settlor retains all the benefits of the property in the trust. The terms of the living trust are memorialized in a written document signed by the settlor and the trustee that spells out what happens to the trust property during the settlor's life and following his or her death. Usually, the settlor serves as the trustee during their lifetime.
What is the purpose of a living trust?
A living trust can have several purposes. One most common goal is to avoid probate court. The assets in a living trust do not go through probate, but pass directly to the trust beneficiaries upon the settlor's death. If a settlor's purpose in creating a living trust is to avoid probate, then the settlor must transfer ownership and title of all assets to the living trust. Any property not transferred to the trust will be subject to probate. Also, future acquired assets must be placed in the living trust as they are obtained.
Is use of a living trust the only way to avoid probate?
No. Assets that are jointly owned with rights of survivorship (such as a real property), or assets that name beneficiaries (such as life insurance, annuities, payable on death (POD) and transfer on death (TOD) accounts), also pass upon death to the survivor or beneficiary, and are not subject to probate.
Will I save estate taxes by avoiding probate?
No. It is a common misconception that avoiding probate avoids estate taxes.
Will a living trust save income taxes?
No. The income of the living trust is taxable to the settlor as if the trust did not exist. After the death of the settlor, the trust could be taxed at rates that are higher than individual rates, but this is usually avoided by transferring income to the beneficiaries during the taxable year.
What are the advantages of a living trust compared to probate?
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Privacy: The terms of a living trust are private, whereas the terms of a will, including beneficiary designations, become a public record when the settlor's will is filed with the probate court.
Control: A trustee is not required to file a will or any other reports with a court, and thus has more independence and control than the executor of a will.
Speed of transfer: A trustee could begin making distributions of assets to beneficiaries soon after the settlor's death.
Avoidance of multiple probate proceedings: If real property or other assets are owned in a number of different states, a living trust may be used to avoid separate probate proceedings in two or more states.
What are the disadvantages of a living trust compared to probate?
Establishing a funded living trust will be more time consuming than drafting a will. The cost of making and maintaining a living trust during an individual's lifetime usually costs more than a will. The administration of a living trust is not supervised by the court as is a probate estate, thus increasing the chance of improper administration by the trustee.
Who should prepare my living trust?
A lawyer skilled in probate, estate planning and tax matters can help you create a trust document that is best suited for your situation. You should be very reluctant to create a trust without consulting with an attorney. If you are considering a living trust, please call 216.225.9181, Email, or use the contact form to schedule a consultation.