A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives.
What is a Living Trust?
A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically you) has full power to manage these assets.1
A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets are structured to automatically pass upon your death.
If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.
The living trust offers a number of potential benefits, including:The living trust offers a number of potential benefits, including:
• Avoids Probate – Assets are designed to transfer outside the probate process, providing a seamless and private transfer of assets.
• Manage Your Affairs – A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided you have adequately funded it and named a trustworthy trustee or alternative trustee.
• Ease and Simplicity – It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.
• Avoid Will Contests – Assets passing via a living trust may be less susceptible to the sort of challenge you might see with a will transfer.
The Drawbacks of a Living Trust
Living trusts are not an estate panacea. They won’t accomplish some potentially important objectives, including:
• A living trust is not designed to protect assets from creditors. They are also “countable resources” for purposes of determining your Medicaid eligibility.2
• There is a cost associated with setting up a revocable living trust.
• Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance since you are no longer the owner.
• A living trust is not a mechanism to save on taxes, now or at your death.2
1 Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
2 The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
© Copyright 2019 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and the Kinesis logo are trademarks of Thomson Reuters and its affiliated companies.
Disclaimer of Liability
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.