Why Should I Use a Living Trust to Distribute My Estate?
When you think about the method used to distribute your estate assets you likely think of a Last Will and Testament. Many people do use a Will as the foundation of their estate plan and as their primary distribution document, however, there is another common option – a trust agreement. If you create a trust and a Pour Over Will, all your estate assets should ultimately be distributed using the trust agreement. In this article, I go into detail about why you should use a living trust to distribute your estate.
What Is a Living Trust?
A trust is an instrument whereby property is held by one party for the benefit of another. A trust is created by a Grantor (also referred to as a Maker, Trustor, or Settlor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor and which is typically activated by a provision in the Settlor’s Will. A living trust is a trust that takes effect as soon as all the legalities of creation are in place. Living trusts can then be sub-divided into revocable and irrevocable living trusts. A Revocable Living Trust is one type of trust often used to distribute estate assets.
Benefits of Using a Living Trust to Distribute Assets
- Avoiding Probate. Your Will must go through probate, meaning it may take months, even years, before the assets gifted in the Will are distributed to the intended beneficiaries. In addition, probating a Will can be expensive, thereby diminishing the value of the estate that is ultimately distributed to loved ones. Assets distributed through a trust, however, are considered non-probate assets, meaning they may be distributed right away without the need to go through probate.
- Control. Once a gift is made using a Will you have no control over how the gift is used by the beneficiary. With a trust, however, you have the option to use the trust terms to retain a certain amount of control over the assets you gift. For example, your trust terms could require the assets to be used for educational purpose only or could limit distributions based on the beneficiary meeting certain conditions first. Furthermore, a Revocable Living Trust can also incorporate certain tools which could allow your Trustee to modify how your beneficiaries receive their distribution, should there be a change in that Beneficiary’s circumstances. For example, such a provision could protect your beneficiary from directly inheriting a lump sum of cash that could disrupt certain government benefits they may be receiving as the result of a disability.
- Gifting to Minor Children. If you are the parent of a minor child, you likely want the estate you leave behind to provide for your child after you are gone. Your minor child, however, cannot inherit directly from your estate. As such, assets gifted to a minor child in your Will must be managed by someone else until the child reaches the age of majority. If you make those gifts using a trust, however, you get to decide who will manage the assets through your choice of Trustee, and can even create a trust for the benefit of minor child, which can give that child’s inheritance certain protections, such as staggered distributions and divorce protection, should that be necessary in the future.
- Avoiding a Lump Sum Gift. Gifts made using a Will are distributed at the end of the probate process. If you prefer to stagger the distribution of assets you are gifting, a trust is the only way to do that. This is particularly advantageous if you have a young beneficiary or if you are concerned that a beneficiary will squander assets gifted to him/her. This type of Trust can be established in a Will if you are not concerned about it becoming public information.
- Privacy. You may not be thrilled about the idea of the details of your estate plan being made public. The provisions of your Will, however, will become public as soon as the Will is submitted to probate. Furthermore, your assets, beneficiaries, and their inheritance will become part of the public record as part of the probate process. A trust agreement, however, does not become public unless the trust is involved in litigation.
Contact Our Owings Mills Estate Planning Attorney
For more information, or if you have additional questions or concerns about using a trust to distribute your estate, contact Richard Gershberg, the experienced Owings Mills Estate Planning and Medicaid planning attorney at Gershberg & Associates, LLC by calling 410-654-3850 to schedule an appointment.