Note: Property held in trust is actually "owned" by the trustees of the trust, subject to the rights of the beneficiaries. The trust itself doesn't actually own anything.
There are many kinds of trusts. A living trust (also called an inter vivos trust) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.
All living trusts are designed to avoid probate. Some also help you save on death taxes, and others let you set up long-term property management.
Do I need a living trust? Property you transfer into a living trust before your death doesn't go through probate. The successor trustee, the person you appointed to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust.
In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.
Is it expensive to create a living trust? The expense of a living trust comes upfront. Many lawyers would charge relatively little for drafting your will, in hopes of getting your estate later as a client. But they may charge more for a living trust.
Some people choose to use a book or software program to create a Declaration of Trust (the document that creates a trust). That's a fine choice, but keep in mind that when doing it on your own, there's always the danger of problems you don't see - problems a lawyer could help you avoid if consulted.
Is a trust document ever made public, like a will? A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate - inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, need not be made public.
Does a trust protect property from creditors? Holding assets in a revocable trust does not shelter those assets from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.
After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate). That complicates matters for creditors; by the time they find out about your death, your property may already be dispersed, and the creditors have no way of knowing exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor's time and effort to try to track down the property and demand that the new owners use it to pay your debts.
On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.
Do I need a trust if I'm young and healthy? Probably not. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your early death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don't need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance, would be simpler.
Can a living trust save taxes? A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death.
Have questions? Confused? Please always feel free to contact us. We are your financial partners, and we are always here to help. Give us a call today.
Security Tax Services LLC
North Sound South Sound
2802 Wetmore Ave, Suite 212 33530 1st Way S, Suite 102
Everett, WA 98201 Federal Way, WA 98003
425.339.2400 253.237.0751
fax 425.259.1099 fax 253.237.0701
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