One of the most widely used estate planning tools is known as a "Living Trust" (also sometimes called a "Revocable Trust").There are at least five reasons that a Living Trust is a great estate planning vehicle.
1. Probate Avoidance. By creating a Living Trust and transferring your assets into the Trust, your family can avoid having to probate those assets at the time of death. This can save significant time (often in excess of a year) and expense (often as much 3% of the estate) involved in probating an estate.
2. Estate Tax Savings. Living Trusts, especially when set up for spouses, can facilitate in maximizing use of the Unified Credit (presently $2 million per person) and the unlimited Marital Deduction. This can avoid any estate tax at the death of the first spouse and can avoid any tax on the first $4 million of a married couple's estate, thereby creating a tax savings approaching $800,000. However, in order to get the benefit of these estate tax savings, you must set up and fund the trusts correctly.
3. Controlled Distribution. A Living Trust allows the party giving the gift to control the amount and frequency of the distributions. This way, rather than a beneficiary getting a distribution all at once, the distributions can be spread out over time and in amount. This can be especially desirable if the beneficiary is a minor or there are concerns about a beneficiary's ability to handle an inheritance all at once.
4. Confidentiality. The administration of a Living Trust is not a public process. Probate, on the other hand, is a court proceeding administered through the probate court. This means that beneficiaries of the probate estate can be identified by anyone. It can also mean assets of the estate can be discovered by third persons. By having assets distributed through the Living Trust, no one other than the beneficiaries and the Trustee know the assets of the Trust or the details of the distribution plan.
5. Disability. If you become totally incapacitated or incompetent, a guardianship may have to be established. This involves a court declaring you to be incompetent. A guardian is appointed to oversee your person and property. However, guardianships can be slow and expensive. If you have a Living Trust and become incompetent, your successor trustee can take over and can use the trust assets for your care. This can be done without a public declaration of incompetence and without a formal court proceeding. This saves embarrassment, inconvenience and considerable expense.
Living Trusts involve more time and expense when setting them up and as a result are not appropriate for every estate. However, for the reasons mentioned, they do have significant benefits. A Living Trust should always be prepared by an attorney who has knowledge and experience in drafting such documents and who knows the tax laws which will impact your estate.
For additional information or to discuss preparation of a Living Trust, visit: www.linslawgroup.com
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(c) Copyright 2008 Michael Lins, Attorney
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