Before we start, it must be highlighted that this blog entry is only relevant to common law countries (i.e. England, USA, Australia, New Zealand, etc.) and to countries which recognize the legal institution of trusts.
“Trust” is an umbrella term that encompasses living trusts, special needs trusts and joint trusts, to name but a few. A trust is considered as a separate entity that owns a person’s assets. The person who manages the trust is called the trustee. Management of the assets is in accordance with the terms of the trust document.
A Living Trust: The Basics
A trust is called a living trust when it is created during a lifetime and transferred to designated beneficiaries after passing away. A living trust sets out how your assets will be managed during the course of your lifetime and beyond; it also addresses how your assets will be managed in the event that you become incapacitated.
Note that a trust that is created in a Will is not a living trust. It is then called a testamentary trust, which is more commonly used as a tax planning tool or a mean to manage assets for certain beneficiaries of a Will.
Anything and everything may be transferred to a trust, but trust assets must be designated specifically as such. These assets can be money, cars, stocks, intellectual property or real estate.
Usually when people talk about a living trust, they mean a revocable living trust. The terms of a revocable trust can be changed or dissolved at any time, hence the name “revocable”.
Upon a revocable trust owners’ death or once a certain provision is met, the trust converts into an irrevocable trust. An irrevocable trust, as you may have guessed, cannot be changed.
However, because a revocable trust is flexible and because the owner has control, the assets within the trust are considered to be the owners’ personal property and creditors may be able to get at the assets. Similarly, assets in a revocable trust may be subject to state and federal estate taxes.
The Advantages of a Living Trust
The main advantage of any type of trust is that they avoid probate, meaning that your assets will be distributed to your heirs more quickly and you will save money on court fees.
They also offer more privacy than a Will, since a Will becomes public during the probate process. Another huge benefit is having a plan of action for your assets and affairs without court intervention in case you ever become incapacitated.
As trusts can be complicated to create because they protect your most important assets, you want to make sure that they are done correctly. Do seek appropriate guidance to discuss the specifics of your situation.
Irrespective of the type of trust you consider setting up, writing your Will is the very first step, and it’s an important one. But that’s not enough. In the digital age, the next step is to store your Will online. Otherwise, what happens if nobody is able to find your Will in a timely manner? liteWill is the only registration platform that is available globally and that provides the option to store your Will online. ‘A Will that is not online is like a Will that does not exist’.
This portion of the website is for information only. The statements and opinions are the expression of their author, not of liteWill, and have not been evaluated for accuracy, completeness or changes in the law. Information contained in this article is not a substitute for tax or legal advice.
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