Some people don’t consider trusts because they are not wealthy. There are certain types of trusts that are primarily used by very wealthy people due to concerns about their estate tax liability.
These would include irrevocable trusts. When you create an irrevocable trust, you are surrendering ownership of the assets. As a result, generally speaking, assets that are conveyed into this type of trust are no longer part of your estate.
Remember, you are not exposed to the Federal estate tax unless your assets exceed the estate tax applicable exclusion amount. In 2014, the exclusion amount is $5.34 million. Because of this relatively high exclusion, most people do not have to worry about estate tax efficiency.
Revocable Living Trusts
While it is true that some irrevocable trusts are used by the wealthy, there are other types of trusts that can be used by people of relatively ordinary means. Revocable living trusts would fit into this category.
These trusts would not be effective for tax efficiency purposes, because you do retain ownership of the trust assets when you create a revocable trust. This can be a positive for some people, because you do not lose direct personal control of the assets that you convey into the trust.
Revocable living trusts are often used to avoid probate. Probate is the legal process of estate administration in a court of law. When you use a last will to state your final wishes, the executor must admit the will to probate. The heirs to the estate do not receive their inheritances until after the estate has been probated and closed by the court.
When you create a revocable living trust, you are referred to as the “grantor” of the trust. Initially, the grantor will typically serve as both the trustee and the beneficiary. This allows you to maintain complete control of the actions of the trust while you are living.
The ultimate goal is to facilitate asset transfers after you pass away. To make this happen, you name a successor trustee to take over this role after your passing. The successor trustee could be someone that you know and trust, but you could also utilize a trust company or the trust department of a bank.
You also name successor beneficiaries who will receive monetary distributions from the trust after your death. The successor trustee will follow instructions that you leave behind in the trust agreement to make these distributions in accordance with your wishes.
The process of probate would not be a factor, so the beneficiaries would receive their distributions in a timely manner.
Free Report on Revocable Living Trusts
In this post we have provided a bit of basic information. If you would like to learn more about revocable living trusts, download our special report on the subject.
The report is being offered to our readers free of charge at the present time, and you can obtain access through this link: Free Living Trust Report.
Parman & Easterday
Latest posts by Larry Parman, Attorney at Law (see all)
- Why Crowdfunding May Cost You Medicaid Eligibility - July 16, 2019
- Beneficiary Designations, etc., Aren’t a True Substitute for a Trust - July 11, 2019
- Does a Trustee Get Paid? - July 9, 2019