A living trust is a legal document, or trust, created throughout an individual’s lifetime where an appointed person, i.e. “trustee”, is given full responsibility in managing that individual’s property and assets for the benefit of the intended beneficiary. Living trusts are prearranged to allow for the easement of transfer of the trust creator or settlor’s property and assets while avoiding the usual complicated and costly legal process of probate. Living trust agreements appoint a trustee that holds legal possession of property and assets that pour into the trust.
Essential Living Trust Takeaways
- A living trust appoints a trustee to administer assets for the beneficiary when the grantor is still living.
- Trustees with fiduciary duty administer trusts in accordance with the best interests of the beneficiary.
- A living trust can be likewise irrevocable or revocable.
How Do Living Trusts Work?
A living trust is administered by a trustee that usually has a fiduciary duty to manage the trust carefully in the best interest of the trust’s beneficiary or beneficiaries appointed by the trust settlor, also known as a grantor. Soon after the passing of the settlor, those assets go to the beneficiaries in accordance to the grantor’s wishes as detailed in their trust agreement. Contrary to a will, nevertheless, a living trust is in effect when the settlor is still living, and the trust doesn’t have to go through the courts to get to the intended beneficiaries when the settlor passes away or comes to be incapacitated.
Types of Living Trusts
Living trusts may be likewise irrevocable or revocable. With a living trust that is revocable, the trust settlor can appoint themselves as the trustee and take over the assets inside of the trust. Nevertheless, this provision means the assets within the trust stay as a part of the trust settlor’s estate, meaning that the individual can still be liable for estate taxes when the estate could be valued outside the estate tax exemptions at the time of their passing. The trust settlor also has the authority to modify and amend trust rules whenever they wish. This means the trust settlor is free to switch beneficiaries or revoke the trust completely.
With irrevocable living trusts, the settlor surrenders specific rights to manage through the trust. The trustee in practical terms comes to have legal ownership, but the individual would also decrease their taxable estate. When the trust agreement for an irrevocable living trust is created, the appointed beneficiaries are determined, and the settlor really can’t do very much to revise the agreement.
Asset Designation Within Living Trusts
A living trust on its own can be named as the beneficiary of specific assets that would otherwise pour directly to the named beneficiary no matter what is declared in a will. These comprise of employer-sponsored retirement accounts like IRAs, 401(K)s, life insurance policies, and specific accounts like Payable on Death bank accounts. Living trusts may cover accounts included in a trust, that is created throughout the lifetime of the settlor’s and aren’t established upon death as named in a last will and testament.
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