A living trust can be a valuable financial tool for you. It is a trust created during your lifetime that goes into effect immediately. You need a written document, called a trust instrument or declaration of trust, that names you as the trustee, or someone else whom you trust.
Since the agreement is created during your lifetime, it can be either revocable or irrevocable. If revocable, it can be changed or revoked or ended at any time during your lifetime. It does become irrevocable upon your death. You can manage a revocable trust but an irrevocable one must be managed by someone else if you are also the beneficiary of the trust.
There are numerous benefits in having a living trust. Here are 5 of them that you should know:
1. Avoids probate.
A major benefit of a living trust is that it avoids probate. Probate is a legal process that determines the validity of a will or which distributes the assets of your estate by court order. Probate can cost thousands of dollars and you lose any degree of privacy since the court proceedings are public.
2. Tax Benefits
By removing the value of your assets from your estate, your estate will not be taxed on this property on your death since the trust owns the property. Also, you can reduce the value of your estate if it is subject to estate taxes by placing certain assets in trust.
3. Provide for Your Children
Your children will have full control and access to their inheritance at age 18 if you pass away before they reach this age. If you wish for them to become more mature before handling these assets, a living revocable trust will enable the property to be held in trust for them and managed by a more experienced person or trustee. The trustee can use the trust funds for the children’s benefit including paying for their education, buying a house or starting a business.
4. If You Have a Child with Special Needs
Should you have a child who will never be able to manage his or her own assets during their lifetime, you can ensure that certain assets in the trust are managed for the child’s benefit. Since your child is probably eligible for public benefits such as Social Security Disability, these benefits may be adversely affected if you leave property to them in a will. A Special or Supplemental Needs Trust can provide long-term management to assist your child with additional resources without affecting their right to continued public benefits.
5. If You Become Incapacitated
By creating a revocable living trust in which you are the beneficiary during your lifetime and funding it, you can create a process that ensures your assets will continue to be managed by your appointed trustee during the period of your incapacity. This eliminates the need to have a court appoint a conservator or guardian.