by Dave Kutcher
Planning for your estate can seem a bit overwhelming. One of the most basic tools used in planning for the disposition of your estate at your death is called a “Living Trust”.
A Living Trust is a good way to manage your assets and help ensure that the people and charities that you care the most about are properly provided for. A Living Trust will give you the power to maintain control over your assets both while you are alive as well as after you have passed away. Below we will look at the benefits of a Living Trust as well as some potential pitfalls so that you can better decide if a Living Trust is going to serve you well as part of your planning.
What is it?
A Living Trust is a legal document where you set out the arrangements for how you want your assets to be distributed after your death. It is called a Living Trust because you create it while you are alive.
The person creating the trust is called a “grantor”. The grantor is the person who places their assets into the trust by transferring the ownership of those assets to the trust. As a grantor you also are the person who chooses the “trustee’, the person responsible for managing the trust. Additionally, the grantor chooses who the ultimate beneficiaries will be, the people or organizations who will eventually receive the assets in the trust.
There are two main type of Living Trusts, revocable and irrevocable. A revocable Living Trust is much more common and allows for more flexibility during your lifetime. You can transfer assets into and out of the trust and you can even cancel the trust if you so choose to do so later while you are still alive. An irrevocable trust has much less flexibility and can be complicated if changes are desired. The two trusts serve different purposes, however, in the estate planning process.
Benefits of a Living Trust
1. Avoiding Probate: Assets that pass to your beneficiaries by way of the Living Trust will avoid the court process known as “Probate”. Depending on how large and complicated your estate is, probate can be a long and expensive process and ultimately, your assets may not end up where you would have wanted them to go. Avoiding Probate saves time and money and also helps avoid any disputes that may arise for assets that pass by way of your Will or a court ordered distribution.
2. Privacy: When your assets pass through the Probate process, the details about your estate are public record … this would include the value of your assets and who your beneficiaries are. Assets that pass to your beneficiaries by way of a Living Trust do so privately, maintaining privacy for your heirs.
3. Control and Flexibility: A trust gives you more control as to how you want your assets distributed. You can be much more specific in how you want assets handled and you are ensuring things happen exactly as you wished. An example of this might be where you want certain assets paid out to beneficiaries over time vs. all at once in a lump sum. This can be very helpful especially where you are concerned with younger beneficiaries receiving very large sums of money without the wherewithal to manage those assets.
If your plans or wishes change, you can make changes to the trust while you are alive.
4. Protecting your Assets: Using a Living Trust can help with your plans while you are alive as well as after your death. If something were to happen to you while you are alive, but not cause your death, your Living Trust can dictate how your assets are to be managed for you while you are still alive. Your trustee can now provide for you while you’re alive as well as for your beneficiaries after your death-these helpful terms could include paying your bills, making sure your health care is managed properly and filing your taxes to name just a few.
While there are many advantages to having a Living Trust, there are some disadvantages too.
1. Expense: Creating a Living Trust means legal expenses and fees that you would not have otherwise. However, those costs may be far outweighed by the previously mentioned benefits.
There are set-up fess, title transfer fees, taxes, trustee compensation and perhaps some additional accounting fees to consider.
2. Trust Management: While there are many benefits with having a Living Trust, someone needs to take the time and effort to get assets transferred to the trust and maintain records. While management of a Living Trust is not difficult, it does add a layer of extra time and energy to maintain.
Choosing to set up a Living Trust is a personal decision you will need to make based upon your circumstances and objectives. We recommend you speak with an estate planning attorney about the merits of a Living Trust and whether it is something that would provide for your goals and objectives.
One additional note would be to consider what is a called a “Pour-over-Will”. A Pour- over- Will can help protect assets that were not part of the Trust during your lifetime by moving assets that have passed via your Will to the trust at your death to be distributed according to the terms of the trust.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement; 10928 Eagle River Road; Eagle River, AK 99577; (907) 795-7452.
