What Is a Living Trust?
Empowering Your Estate
In estate planning, the choices you make today can shape the future for generations to come. A living trust is a powerful and versatile estate planning tool that can provide individuals with greater control and flexibility over the management and distribution of their assets.
Also known as an inter vivos trust, a living trust operates during your lifetime, allowing you to maintain control and adapt your plans as circumstances change.
Whether you’re just beginning to explore your estate planning options or are further along, read on to learn how a living trust can safeguard your legacy, streamline asset distribution, and provide a lasting impact on your loved ones’ financial security.
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Key parties involved in a living trust
Before we get started though, let’s go over some terminology that we’ll use going forward. A living trust involves several key parties:
- Grantor: The person who establishes the trust and transfers their assets into it.
- Trustee: The individual or entity responsible for managing the trust assets. The grantor often serves as the initial trustee, retaining full control over the assets during their lifetime. Successor trustees are designated to take over management upon the grantor’s incapacity or passing.
- Beneficiaries: Those who will receive the trust assets according to the grantor’s instructions. Beneficiaries can include family members, friends, charitable organizations, or even the grantor themselves during their lifetime.
The basics of a living trust
So, what is a living trust? A living trust is a legal entity that holds and manages a grantor’s assets during their lifetime and facilitates the seamless transfer of those assets to designated beneficiaries upon the grantor’s passing.
Unlike a will, which only takes effect after death, a living trust is active from the moment it is created, allowing for immediate asset management. The assets held in a living trust do not go through probate (the court-supervised process of validating a will and distributing assets). As a result, living trusts offer greater privacy and efficiency in estate distribution.
Types of living trusts
Living trusts can be categorized into two main types: revocable and irrevocable.
As the most common type, a revocable living trust allows the grantor to make changes or terminate the trust at any time. It provides maximum flexibility, enabling the grantor to retain control over the assets and amend the trust’s terms as life circumstances change.
An irrevocable living trust, on the other hand, cannot be modified or revoked without the consent of the beneficiaries. While irrevocable trusts offer less flexibility, they provide significant asset protection and can be beneficial for tax planning purposes.
Do I lose control of my assets with a living trust?
No, you do not lose control of your assets when you create a living trust. In fact, one of the primary advantages of a living trust is that you retain full control over your assets during your lifetime as the grantor and trustee of the trust.
When you establish a revocable living trust, you transfer ownership of your assets into the trust’s name, but you maintain control as the trustee. As the trustee, you have the authority to manage and use the trust assets as you see fit, just as you would if they were not in the trust. You can buy, sell, or change the assets, and you can also amend or revoke the trust entirely if you wish.
The living trust becomes especially beneficial in the event of your incapacity or passing. If you become unable to manage your affairs, a designated successor trustee can seamlessly step in and take over the management of the trust assets according to your instructions. This ensures that your assets are managed according to your wishes and helps avoid the need for a court-appointed guardian or conservatorship.
What are the benefits of establishing a living trust?
Living trusts offer a wide array of benefits that make them a highly appealing option in estate planning. One of the most significant advantages is probate avoidance. By utilizing a living trust, assets can seamlessly pass to beneficiaries, without the need for probate—saving time, money, and privacy concerns. Unlike wills, which become public record during probate proceedings, living trusts provide a higher level of confidentiality, keeping your estate details out of the public eye.
Living trusts ensure continuous asset management during incapacity, as designated successor trustees can smoothly step in to manage the trust without court intervention. For those with special needs beneficiaries, living trusts can incorporate provisions to provide ongoing financial support without jeopardizing their eligibility for government assistance. Additionally, irrevocable living trusts can offer asset protection, shielding your wealth from potential creditors and lawsuits, while also facilitating strategic tax planning.
Furthermore, the seamless transition of asset management to successor trustees ensures that your estate remains secure and efficiently managed in the event of your passing or incapacity. The comprehensive benefits of living trusts make them a versatile and indispensable tool for creating a robust and lasting estate plan.
How do I fund a living trust?
To ensure a living trust functions as intended, it must be properly funded. This involves transferring ownership of assets, such as real estate, bank accounts, investments, and other personal property, into the trust’s name. Funding a trust requires updating the titles or beneficiary designations of these assets to reflect the trust as the owner or beneficiary. Assets inadvertently left out of the trust may still need to go through probate, underscoring the importance of a comprehensive funding strategy.
Does a living trust mean I don’t need a will?
While a living trust offers numerous benefits in estate planning, it is essential to remember that a will still plays a critical role in handling assets not transferred to the trust and addressing any remaining matters. Having a will allows you to dispose of any assets that were not placed in the trust, ensuring that all your possessions are accounted for. Moreover, a modest probate estate can have its advantages. Going through probate proceedings provides a formal platform for addressing alleged creditors’ claims, giving them their day in court. Once probate is complete, any later claims against the estate are generally barred, providing a level of finality and closure. By utilizing both a living trust and a will, you can create a comprehensive estate plan that covers all aspects of your assets and wishes, maximizing protection and efficiency.
Considerations and limitations
Living trusts are not a one-size-fits-all solution, and they may not be necessary for every individual’s estate plan. Some considerations and limitations include:
- Costs: Establishing a living trust typically incurs higher upfront costs compared to drafting a will.
- Complexity: Living trusts require ongoing maintenance, including funding and asset management, which can be more complex than managing a will.
- Tangible Assets: While living trusts are ideal for managing financial assets, they may not be necessary for assets like vehicles, furniture, and personal belongings.
- Retirement Accounts: Retirement accounts, such as IRAs and 401(k)s, have unique tax implications that may require special consideration in trust planning.
- Time Sensitivity: Creating a living trust involves a time commitment, including discussions with an attorney and the proper execution of legal documents.
Putting it all together
A living trust offers you complete control and flexibility over your assets during your lifetime, while also providing a mechanism for seamless asset management and distribution in the event of your incapacity or death. It is a powerful estate planning tool that empowers you to protect and manage your assets efficiently and according to your wishes.
About Norway Savings Asset Management
At Norway Savings Asset Management Group, we manage trusts and investments for people like you. We’re more than just financial advisors—we’re family fiduciaries—which means we’re both legally and ethically bound to put your interests first. We take the responsibility of safeguarding your assets incredibly seriously. We’re here to make sure your story lives on.
*This article is intended for educational purposes only and should not be construed as legal or tax advice.