Estate planning is a hard topic to talk about, but no matter your age or wealth, it is smart to have a plan in place should the unexpected happen. Basic estate planning starts with a will, which deals not only with your property but with other important decisions, as well. You may know, however, that a will comes into effect only after you pass away. While you are still alive, there is a way to manage your estate through a tool called a living trust.
A living trust, also known as a revocable trust, is a legal document that places your assets—investments, bank accounts, real estate, and vehicles—in a trust for your benefit during your lifetime, and spells out where you would like these things to go upon your death.
Under the terms of the living trust, you are the grantor of the trust and remain in complete control of your assets, moving them in and out of the trust as you wish. The person you designate to distribute the trust’s assets after your death is known as the successor trustee. The successor would also act on your behalf, handling financial issues, should you become incapacitated.
The majority of living trusts are revocable, which means that you can cancel or change it at any time during your life. Since you have full control over the terms of the trust, you can change the beneficiaries of the trust, as well as the person you have designated as your successor trustee.
Two main advantages of living trusts are the ability to avoid probate and ensuring the privacy of your personal matters. The ability to bypass the court process is a huge benefit of a living trust. A will has to go through probate, which can be a painstakingly long legal process that is used to value your estate, settle any debts, pay taxes, and transfer assets to your heirs. Probate can cost a lot of money, and until the process is settled, no assets can be distributed.
Another advantage of a living trust is privacy. A will is a public document that is open for all to scrutinize and potentially contest. Probate is also open to public view, so anyone can see the details of your estate. In contrast, a living trust is private, more difficult to challenge, and avoids the public probate process altogether.
Here are some common FAQs related to living trusts to help you learn more about this part of estate planning:
Does a living trust avoid estate taxes? A living trust can help minimize estate taxes. Taxable estates not exceeding $11.7 million in value are not subject to federal estate taxes. Some states, however, levy estate taxes on smaller estates. Oregon, for example, levys an estate tax on estates exceeding $1 million in value, and Washington state on estates exceeding $2.193 million in value.
Can I include property in my trust if I still owe money? Yes. The most popular example of such property is a house with an attached mortgage. Your successor Trustee or the beneficiary inheriting the house becomes responsible for the debt.
Does a living trust protect assets from creditors? Yes, a living trust can be set up to protect the assets from the creditors of your beneficiaries, including a surviving spouse as beneficiary. It does not, however, protect assets from your own creditors; a different type of trust can be set up for that purpose.
How does a trust avoid probate? Oftentimes called “funding” your trust, this is the act of re-naming your assets so that your trust is the owner. You, as the trustee of your trust, continue to have complete control over the assets just as you had prior to creating the living trust. So long as all your potential probate assets are funded to your trust, probate can be avoided.
When should you update a living trust? You should consider amending your living trust if:
- You get married or divorced
- You have a child
- You move to another state
- Your financial status changes significantly
- One of your trust beneficiaries or named trustees dies
Outside of any major life occurrence, it is wise to review your trust at least annually to ensure that your assets are properly funded to your trust and to account for any changes in tax laws that may affect your current trust plan.
To learn more about how you can establish a living trust or to address any other topic related to estate planning, do not hesitate to contact Caress Law either by calling (503) 292-8990 or using the contact form on our website.