If you are not extremely wealthy, you may assume that you should use a last will as a vehicle of asset transfer rather than a trust. This is a popular misconception, but it is just that, a misconception.
There are different types of trusts. Indeed, there are trusts that are used by high net worth individuals who are exposed to the federal estate tax. This tax is potentially applicable on asset transfers that exceed $5.34 million. (This is the figure that is in place for 2014.)
However, there are other types of trusts that are useful for people of relatively ordinary means. One of them is the revocable living trust.
Efficient and Ongoing Control
When you create and fund a revocable living trust, you do not lose control of the assets while you are living. The anatomy of a trust involves the grantor, who is the person creating the trust; a trustee who administers the trust; and a beneficiary who receives monetary distributions from the trust.
Throughout your life, you can serve as the trustee and the beneficiary, so you direct the actions of the trust, and you can take monetary distributions. If you want to, you can dissolve the trust, and it would no longer exist. The assets would once again be in your direct personal possession.
The primary benefit that you gain when you create a revocable living trust is the avoidance of probate. If you use a last will to direct future asset transfers, the will must be admitted to probate after you die. This is a time-consuming and expensive process, so people often try to avoid it.
Though you can act as the trustee and the beneficiary initially, the ultimate goal is to facilitate postmortem asset transfers. When you create the trust agreement, you name a successor trustee to take over this role after you pass away. You also name successor beneficiaries.
After your passing, the successor trustee can distribute assets to the successor beneficiaries, and probate would not be a factor.
When you are choosing a successor trustee, you could name someone that you know, but you could alternately use a corporate trustee like a trust company or the trust department of a bank.
You gain a number of benefits when you use a corporate trustee. There would be no longevity concerns, and there would be no conflicts of interests. Plus, you may not know anyone who is qualified to administer a revocable living trust. If you use a professional fiduciary entity, you can be sure that the trust will be administered properly.
Learn More About Revocable Living Trusts
If you would like to learn more about revocable living trusts, download our in-depth report. This special report is being offered on a complimentary basis, and you can access your copy through this page: Indianapolis Living Trust Report.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.