What Is the Purpose of a Living Trust? A living trust may simplify things with the passing of your assets in case of death or incapacity. Besides, it ensures that your assets pass to the people you really wish to be your heirs. Helping you better understand its nature and its pros and cons is the purpose of this article.
What is the Purpose of a Living Trust and Its Definition?
What Is the Purpose of a Living Trust? A living trust is a document elaborated during someone’s lifetime where a person, called “the trustee”, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary. Its purpose is to allow the easy transfer of the trust creator’s assets while bypassing the complex and expensive legal process of probate.
Living trusts are administered by a trustee who normally has a fiduciary duty to manage the trust prudently in the best interest of the trust beneficiaries designated by the grantor. With the death of the settlor, these assets flow to the beneficiaries according to the grantor’s will, as defined in the trust contract. Unlike a will, however, a living trust is in effect while the institution is alive, and the trust does not need to go through the courts to reach the intended beneficiaries when the institution dies or becomes disabled.
Living trusts are revocable, which means you can terminate them whenever you want to.
What Are the Pros of a Living Trust?
- It avoids the complex probate– Your assets may skip probate and be transferred directly to your heirs after your death. This will facilitate a faster transfer and it will spare them from extra work and time, allowing them to begin managing those assets sooner. You will also prevent your heirs from spending a lot of money in court and with legal fees.
- Privacy– Probate is a public process. Therefore, your assets and everything associated with them will be made public. But a living trust is a private contract between the grantor and the trustee. So, the requirement and the terms of the trust, its assets, and beneficiaries can remain confidential.
- It helps you plan for the event of incapacity– your trustee will take over the management of the trust assets if you are unable to continue as trustee dues to incapacity. This ensures that a person designated by you will protect and manage the trust assets if something happens to you.
- Flexibility– Since it is a document you can change at your you, it has a lot of flexibility. You can add or withdraw assets, change the trustee and beneficiaries of a living trust, modify the terms, or revoke a living trust whenever you want.
What Are the Cons of a Living Trust?
- No court supervision– That is one of the benefits of the probate process, you have the protection of a court. With a living trust, however, all the process is private and depends on the trustee. It can be considered a disadvantage under certain circumstances.
- Potential for failure to properly fund the living trust– When assets are not properly transferred to the trust, they remain part of your “probatable” estate and are not subject to the terms of your trust.
- It may not be so good for smaller estates– If the estate has a small value, the probate fees may be quite low in relation to the costs of creating and maintaining a living trust. Besides, a living trust does not prevent your assets from being counted for estate tax purposes.
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