Although a Last Will and Testament remains the most common estate planning document, a living trust is not far behind in popularity. One reason living trusts are so commonly included in an estate plan is the flexible nature of a trust. The Sacramento living trust attorneys at the Northern California Center for Estate Planning & Elder Law discuss the top three reasons to create a living trust for your estate plan.
What Is a Living Trust?
The general concept behind a trust is rather simple. A trust is a relationship whereby property is held by one party for the benefit of another. A Settlor (also referred to as a “Grantor” or “Trustor”) transfers assets into the trust that is then administered by a Trustee, appointed by the Settlor. Trusts can be divided into two broad categories – testamentary and living trusts. A testamentary trust is a trust that only activates after the death of the Settlor. As the name implies, a living trust activates while the Settlor is still alive. Living trusts can be revocable or irrevocable.
Reasons to Include a Living Trust in Your Estate Plan
Your estate plan will be uniquely tailored to your needs and goals; however, there are some common estate planning objectives that can be achieved using a living trust, such as:
- Making sure your estate avoids probate. Probate is the legal process that is typically required following death. If your estate is required to go through formal probate it can take a very long time to complete. In addition, formal probate can be very costly – and it is your estate assets that will be used to pay for the cost of probate. Consequently, the estate that is eventually distributed to loved ones may be significantly less than what you thought you left behind and your loved ones may have to wait months – even years – before they receive their inheritance. It should come as no surprise, therefore, that probate avoidance is a popular estate planning goal. Creating a living trust can help further that goal because assets held by a trust are non-probate assets. It is for this reason than many people choose to rely on a living trust to distribute the majority of their estate assets.
- Protecting the inheritance of a minor child. If you are the parent of a minor child, making sure you leave behind sufficient assets to support your child is undoubtedly a primary estate planning goal. One stumbling block to achieving that goal is the fact that your minor child cannot inherit directly from your estate. Passing down your child’s inheritance in a living trust ensures that those assets are protected until your child reaches the age of majority and can inherit directly. The assets in the trust are managed by a Trustee, appointed by you, until the child is old enough to manage them himself/herself. A living trust also allows you to stagger the distributions your child eventually receives so that he/she has time to learn how to handle the inheritance. This is a popular feature for parents because handing a young adult a large sum of money all at once is rarely a wise idea.
- Protecting your assets from threats. Unfortunately, your assets are probably at risk in ways you haven’t even thought of yet. Creditors, divorce, and economic downturns are threats you may have considered; however, your assets could also be at risk from a spendthrift beneficiary, because of the divorce of a beneficiary, or even if you need to qualify for Medicaid as a senior. The good news is that an irrevocable living trust can help. Assets transferred into an irrevocable living trust become trust assets. As such, you no longer have an ownership interest in those assets which protects them from threats.
Contact Sacramento Living Trust Attorneys
Please download our FREE estate planning checklist. If you have additional questions or concerns about living trusts, or you wish to discuss how one might fit into your estate plan, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.