A living trust, also known as an inter vivos trust, can be an extremely useful tool for some people seeking to plan their estates. Depending on your needs, it can both be an effective tool for managing your assets while you are alive, and become an effective means of asset distribution after you pass away. But what exactly is a living trust, and what can it do for you?
What is a Living Trust?
In simple terms, a living trust is an arrangement where you place your assets in the control of another person or group of people, known as trustees, who watches over it on your behalf. You can name yourself as trustee of the trust so that while you are alive, you still have control what happens to these assets. A living trust terminates when you pass away, and the assets included in the trust are passed directly to your heirs or beneficiaries designated in the trust. It can be revocable, meaning you can freely put money and assets into the trust, as well as remove them, and allows you to change the terms of the trust at any time. An irrevocable living trust provides certain advantages but its terms cannot be changed and it eliminates your control over the assets in the trust during your lifetime.
How Does a Living Trust Work?
When you create a living trust, you appoint a trustee or trustees to manage any assets you place into it on your behalf. Then, when you pass away, the trust converts into a testamentary trust, and if you named yourself as the lifetime beneficiary of the trust, the beneficiary of the trust switches from you to your heirs. This means the assets in the trust are given over to your designated beneficiaries, similarly to how property is transferred by a will.
What Are the Benefits of a Living Trust?
There are several benefits to a living trust. The first major benefit is that assets held in a trust are considered non-probate, allowing you to avoid potential difficulties of the probate process and getting the assets to your loved ones faster. This advantage varies depending on your state of residence. For example, probate in New Jersey is relatively straightforward and has minimal costs, while probate in New York is a more time-consuming process. Second, assets held in a properly structured trust are protected from certain taxes, particularly the gift and estate taxes. Assets in an irrevocable trust that are outside of your control will not be counted against you if you are applying for Medicaid. Additionally, creditors seeking to satisfy any outstanding debts will find it harder to do so if your assets are held in a properly structured trust, compared to if it is part of your regular estate.
Should You Get a Living Trust?
Ultimately, a living trust is not for everyone, and there are certain restrictions that can make other options preferable when it comes to estate planning. There is a trade-off between how much benefit you can receive from a living trust and the amount of control you have over the assets in the trust. For example, if you are considering a living trust with someone other than you as the trustee, you need to be prepared for the reality that you will no longer personally own the assets in the trust. That is why you should speak to a lawyer with experience handling estate law matters. They can help you review your options, and ensure your plan fits your needs.
The attorneys at the Law Offices of Hunziker, Champion, Romer & Miller understand that the aging population has specific and diverse needs. The firm helps seniors and their families by handling all aspects of elder law including guardianships, end of life planning, asset preservation, Medicaid planning, and trusts and estates issues. If you need to consult on elder law issues, call The Law Offices of Hunziker, Champion, Romer & Miller at (973) 256-0456 or fill out our contact form for a consultation.
