Living Trusts for Planning Your Estate
Why would I want a trust as part of my estate plan?
There are two likely reasons. A trust can fulfill your desire to hold property for a partner, dependent child, friend or family member for a specified period of time. Second, a trust can minimize costs, delays, publicity and contests, thus achieving efficient estate planning.
How does trust administration differ from the probate process?
It offers privacy and simplicity. Although your will is a matter of public record in virtually every state, your living trust is not. Therefore, it protects information about your assets. However, even though living trusts fall outside mandatory court supervision, a trustee may be required to seek instructions from a court to resolve disputes with beneficiaries over the administration of the trust, which can be costly at times.
How popular are living trusts?
On the West coast, living trusts are a popular device because they avoid court supervision of the administration process. In states like New York and Texas where court supervision (or probate) is relatively simple, they are not as common. When prepared for individuals in these states, they tend to be used for asset management or in anticipation of illness.
Can I escape taxation through a trust?
No, this is a common misconception. However, all tax strategies available under a will are equally available should you choose to use a living trust as your principal instrument of disposition. Trusts can be effective during your lifetime, or can become effective at death through your will.
What’s the difference between an irrevocable and revocable trust?
A revocable (changeable) trust works well for planning for a disability and to avoid contests of one’s will. Irrevocable (unchangeable) life insurance trusts can be used to remove a life insurance policy from a person’s estate, avoiding estate taxes on the insurance proceeds. Generally, this strategy is employed to benefit others. Such a trust can hold any kind of property, including a life insurance policy. As its name implies, after you establish an irrevocable trust, you cannot later change or revoke most of its key provisions.
How would a trust benefit my children?
Trusts are important for lesbian, gay, bisexual and transgender parents with children. For example, a lesbian couple raising a child from a prior heterosexual relationship could run into problems upon the death of the biological mother. Without a trust, the biological father could claim custody of the child and manage all the assets the child receives through a will. However, if the biological mother sets up a trust, she can name her partner as the trustee. Her partner would then be responsible for managing the assets, executing the wishes of the deceased and deciding when and if the child should get the money.
How would I set up a trust for my child?
There are generally two ways to approach a trust for a dependent. First, you may set aside assets during your lifetime to provide funds for a child’s college education, or to begin creating a wealth base for a child. Second, you may include a trust as part of your will or revocable living trust to delay distribution of assets to your children until they reach a suitable age.