An increasing number of Americans are relying on an estate-planning tool known as a ‘”revocable living trust.” A living trust can help you control how your property is managed while you’re alive and how your assets should be distributed after your death.
Living trusts have risen in popularity because they provide a means of passing property to heirs without going through probate, which can be a costly and time-consuming process. Despite such advantages, living trusts may not be for everyone. Consider the following information to help determine whether a living trust makes sense for you.
What a living
trust provides
As its name implies, a revocable living trust is set up during your lifetime. You transfer your property into the trust’s name so the trust becomes the “owner” of your property. You then appoint a trustee – either yourself or someone else – to manage your trust, just as an executor would manage your will. The trustee holds your assets and distributes them according to the instructions you specify.
You can also use a living trust to specify how your property will be managed if you become incapacitated through injury or illness. Property commonly included in a living trust may include cash, investment holdings, real estate and personal possessions.
Like a will, a revocable living trust also lets you direct how and to whom your property will be distributed after your death. Beneficiaries of a living trust may include family members, friends or favorite charities. Unlike an irrevocable trust, a living trust gives you the freedom to:
4 Terminate the trust at any time.
4 Change trustees and beneficiaries.
4 Move assets in and out of it whenever you want.
Funding your trust
The process of placing assets into your living trust, known as “funding” the trust, involves refilling your property in the trust’s name. Funding your living trust is very important because the trust will not take effect until the property transfer is complete. If you set up a living trust but fail to transfer assets into it, the trust is an empty shell and any assets not titled to the trust will be subject to probate after your death.
Who should consider
a living trust?
Living trusts can be a simple means of accomplishing many estate-planning objectives. A living trust may be right for you if:
4 You have a large estate and want to avoid probate. One of the main benefits of having a living trust is that it allows your estate to avoid often costly probate, but remember you’ll also need to pay fees to establish and manage a living trust. Make sure your estate
is large enough to justify such fees. If your estate is valued at $100,000 or more, for example, a living trust may enable you to save in attorney and executor fees. If you have a smaller estate, creating a valid will and going through probate may cost less. Consult your qualified financial advisor and an experienced estate-planning attorney for complete details.
4 You want to maintain controlover your assets. While you’re alive, a living trust
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allows you to transfer control of your assets to a trustee or successor if you become disabled or incapable of managing your affairs. A living trust also allows you to name successor trustees, so you can name someone else to handle your estate if the first person you named can’t do it.
4 You want to keep your privacy. Unlike probates and wills, no public record is required for living trusts, so your privacy is ensured. This may be useful if, for example, you want to leave money anonymously to a charity or don’t want your heirs to know how much other beneficiaries are receiving.
Tips for success
If you decide a living trust is right for you, take steps to ensure your trust will perform up to your expectations. Take time to discuss your living trust with your heirs to help ensure your plans proceed as intended.
Remember that retirement accounts, which are often the biggest portion of an estate, cannot be placed into a living trust, but you can make the trust the beneficiary of your retirement plan’s withdrawals. If you’d like to do this, make sure your retirement plan withdrawals are payable directly to your trust.
Work with experienced professionals
Living trusts are not regulated by a government entity, so be wary of buying into a living trust offered by a telephone salesman or through an unaccredited seminar. Instead, explore all of your estate-planning options with an experienced professional, such as a licensed estate-planning attorney or your qualified financial advisor.
Taking the time to get solid, professional advice can give you peace of mind and help you determine if your personal situation might benefit from a revocable living trust.
American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a brokerdealer.
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