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 It 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.
Why Create a Living Trust?
There are a number of potential benefits from using this type of trust, including:
- Avoids Probate- Assets transfer outside the probate process, providing a seamless and private transfer of assets.
- Manage Your Affairs- It can care 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 this type of trust may be less susceptible to the sort of challenge you might see with a will transfer.
The Drawbacks
Living trusts are not an estate panacea. They won’t accomplish some potentially important objectives, including:
- A living trust doesn’t 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 easily transfer 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
For more information, please contact Paula Ellenberg via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
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.
