Legal advice is invaluable when you are planning your estate, because people who are not aware of all the facts sometimes harbor misconceptions. One of them is the idea that trusts are only useful for the wealthy.
There are trusts that are used by high net worth individuals. People with very significant financial resources could be exposed to the federal estate tax. There is a $5.34 million exclusion in 2014. People with assets that exceed this amount are exposed to the estate tax.
If you wanted to remove assets from your estate for estate tax purposes, you could use various different types of irrevocable trusts. When you create this type of trust, you are surrendering incidents of ownership, because you cannot revoke or rescind the trust. As a result, generally speaking, the assets would no longer be part of your taxable estate.
These types of trusts can also be useful for asset protection purposes.
Revocable Living Trusts
A revocable living trust is a type of trust that is useful for people of relatively ordinary means. This type of trust would not be used by a wealthy person seeking estate tax efficiency, because you retain control of the assets while you are living.
The trust is revocable, so you can dissolve the trust at any time. If you were to do so, the assets would once again become your direct personal property. Because of this, they would be part of your estate for tax purposes.
On the other hand, this ongoing control is part of the appeal to people who are not concerned about the estate tax.
One of the primary benefits that you gain when you utilize a revocable living trust as a vehicle of asset transfer is the avoidance of probate. This is a legal process that would come into play if you use a last will to direct the transfer of your personally held property.
There are pitfalls that go along with this process. Probate can be very time-consuming, taking close to a year in simple cases. Family members do not receive inheritances while the estate is being probated, so this time lag can cause difficulties.
Another negative is the cost factor. Various different expenses accumulate during probate, and these expenditures reduce the value of the estate that is being passed on to the heirs.
When you use a revocable living trust to arrange for future asset transfers, the trustee that you name in the trust agreement can distribute assets to the beneficiaries outside of probate. As a result, family members would receive their inheritances in a timely manner, and there would be no probate expenses.
Free Report on Revocable Living Trusts
Revocable living trusts are very useful for a wide range people. If you would like to learn more about them, download our special report. This report is being offered free of charge, and you can access your copy through this link: Grand Forks ND Living Trust Report.