With this in mind, let’s look at these trusts in detail.
The biggest benefit that you derive when you create a revocable living trust is the avoidance of the probate process. You probably want your heirs to receive their inheritances in a timely manner. If you use a last will to transfer your personally held property, there will be a significant delay while the estate is being probated.
This process will take multiple months in the simplest of cases, and there are cases that are held up in probate for years. The probate property cannot be distributed to the heirs until the process has run its course, so this can present a problem for some families.
When you have a revocable living trust, the trustee that you name in the trust agreement will follow your instructions after your passing. Resources will be distributed to the beneficiary or beneficiaries, and these distributions would not be subject to the probate process.
Another major benefit that you gain when you use a revocable living trust is the ability to account for the possibility of incapacity. You could empower a disability trustee to administer the trust should you become incapacitated at some point in time.
People sometimes assume that they have no personal association with assets that have been conveyed into any type of trust. This is not the case when it comes revocable living trusts.
The person creating the trust will typically act as the trustee and the beneficiary initially, so the grantor of the trust retains full control. Plus, the trust can be revoked at any time, and the grantor would once again assume direct personal possession of the property in the trust.
Because of this ongoing control and enjoyment of resources in the trust, if assets in the trust earn income, this income would be taxable. You could simply claim the income on your personal income tax return, though the trust itself could file an income statement.
We should also touch upon the estate tax. If you are transferring more than $5.34 million to people other than your spouse (this is the figure for 2014), the estate tax is applicable.
There are certain types of trusts that can provide estate tax efficiency. However, assets that have been conveyed into a revocable living trust would be part of your taxable estate.
Living Trust Report
To learn more about living trusts, download our special report. This informative report is being offered free of charge at the present time, and you can access your copy through this page: Indianapolis IN Living Trusts.
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.