Whether or not you have enough assets to justify a living trust depends on several factors. This includes age, marital status, and wealth.
Assets in a trust need to be assigned to it (also known as “funded”). The grantor must remove their name from the deed or other legal document and add the trust’s name.
Asset Protection
Depending on how your living trust is structured, its assets can be protected from creditors and spouses. Asset protection strategies include revocable or irrevocable living trusts, separate legal entities, homestead exemptions, limited partnership structures, and series LLCs.
Some states have laws that allow for asset protection from creditor claims by transferring the property to the trust before filing for bankruptcy. This is called “DAPT,” or debtor-creditor protection. This can be accomplished by retitling investments in the name of the trust, though this may require new account paperwork and a sign-off from the investment company or financial institution.
Some false promoters try to scare seniors into thinking their bank accounts are less safe than annuities they sell and that by putting their assets in a trust, they will protect them from creditors. High-pressure sales pitches often accompany these tactics and should be reported to the local consumer fraud department, the state insurance department, or your attorney. Never be pressured into signing a contract that you have not thoroughly researched.
Estate Planning
Creating a living trust is an essential part of estate planning. It lets you avoid probate at death and prevents a court from controlling assets if you become incapacitated. It also keeps financial matters private and can help you maintain a guardian for children or disabled adults.
A trust can also save your estate money by avoiding probate fees. Additionally, a trust can ensure that all assets are distributed exactly how you want them to be. It can also prevent you from unintentionally disinheriting someone or leaving them nothing by naming beneficiaries specifically in the trust.
While many people think of trust as something to be used at the end of life, it is also a valuable tool during your lifetime. It can be revoked (canceled) at any time, unlike a will, so you can make changes as your needs evolve. If you have titled assets in your name that have payable-on-death (POD) beneficiary designations, they can be transferred to the trust without probate. This includes retirement accounts, like an IRA, 403(b) or 401(k), and money market investment accounts.
Tax Planning
California living trust can help you control the timing of when heirs get your assets. For example, you can place age-based milestones in the trust that could stipulate when a loved one can inherit rental property or investment accounts or when they can withdraw funds for education costs.
It can also reduce your taxable estate. This is because a trustee, not the grantor, owns the assets in a living trust. This can save heirs significant taxes, especially if you own an interest in a family business.
Schwab professionals can help you work through the pros and cons of a trust. They can also help you determine if a trust may suit your situation by reviewing the dollar value of your assets. It is essential to consult with an experienced attorney and financial advisor to avoid unscrupulous salespeople who target seniors at “free” living trust seminars or in-home appointments where they can steal their identity and sell products that may not be necessary.
Family Protection
Unlike a will, a living trust allows you to provide more control over who receives what and when. It also allows you to place conditions like age attainment provisions or restrictions on how assets may be used, such as for children’s education or a charitable cause. You can even limit the amount of money a beneficiary may receive if they have creditor issues or are in divorce proceedings.
A living trust also provides privacy by avoiding public records and can save your estate money because it does not have to go through the probate court process. It is essential to work with a financial professional that you can trust and who is familiar with living trusts and estate planning.
Some fraudulent promoters use “free” seminars on living trusts and other estate planning tools to gather personal information from seniors and then sell them financial products such as insurance annuities. Be wary of these high-pressure sales tactics and follow the Cooling Off Rule (three business days) if you attend a seminar or have an in-home meeting with someone who claims to be an estate planner or living trust expert.
Estate Avoidance
A living trust can help your family avoid the expense of probate. It can also protect your heirs from expensive court battles over how your assets should be distributed. In addition, assets held in a trust are not counted when determining eligibility for government programs such as Medicare and Medicaid.
Another benefit of a living trust is privacy protection. Probate documents are public records, but assets a revocable living trust handles are not. This can be particularly useful if you want to keep your estate plans private from those who might try to take advantage of you or your heirs after your death.
While a living trust has many benefits, choosing the right one is essential. Beware of false promoters selling one-size-fits-all living trust kits that may cost thousands of dollars and do not include the services you need. Unscrupulous sales agents frequently target seniors, lure them to “free” seminars, or make in-home appointments to sell them unnecessary trust. In some cases, these promoters use the trust-selling process to gain access to personal information and sell other products, such as insurance annuities.
