Question:  Do I need a living trust?

Answer:  It depends on your family situation, assets and estate planning goals.

First, what is a living trust?  A living trust, also called a revocable living trust, is an estate planning vehicle that allows you to transfer your property to other persons after passing.  You can also specify who should inherit your property in a last will & testament, however basic wills don’t have many of the beneficial features of a living trust.

With a basic will, your property will be distributed outright to your beneficiaries after passing.  While basic wills don’t allow a person to put “strings” on the inheritance, this can be done with a living trust.  A trust can specify how and when a person should receive their inheritance.  For example, a trust can dictate that inherited funds be spent on college, or not accessible by the beneficiary until they reach a certain age.  A trust will also name someone (called a successor trustee) to manage the assets left in the trust, and depending how the trust is drafted, this management can be in effect over the life of the beneficiary.  If a beneficiary has a money management problem, this can be a huge benefit by ensuring that the inherited assets aren’t spent unwisely.

Properly using a living trust can also ensure that a person’s estate need not pass through probate.  Probate is the judicial process by which assets are transferred out of the name of the deceased person and into the names of the heirs.  This process can be avoided with a living trust.  After a person creates a living trust they “fund” their trust, meaning that they transfer assets out of their individual name and into the name of the trust.  Then, when the person passes, their assets are all owned by their trust – not them individually – and thus there is no need for a probate action.  The trust will then dictate how the assets in the trust are to be distributed.

A trust can also protect the inheritance left to a beneficiary from the beneficiary’s creditors.  This means that the beneficiary’s inheritance can be protected from divorcing spouses, creditors, and others to whom the beneficiary may be liable.  This is a significant benefit that can be accomplished by creating a trust.

Trusts are also very helpful with blended families.  Often a person will want to leave their assets to their spouse, but ensure that whatever is left over after the spouse passes goes to their children who are not also children of their spouse.   This can be accomplished by using a living trust, and leaving the assets to the spouse for life and then to the children after the spouse’s passing.

Finally, a trust can provide beneficial tax savings.  Currently, the federal government taxes estates over $5 million (as indexed for inflation).  Each person can leave up to $5 million before any estate tax is due.  But consider this issue: a married couple jointly owns $10 million.  One spouse passes leaving all of their assets to the surviving spouse.  Now, when the surviving spouse passes, he or she owns the whole $10 million, meaning $5 million will pass estate tax free and $5 million will be subject to estate taxes.  With a trust, it can be structured to leave the assets to the surviving spouse for their use, but not to be legally owned by the spouse.  What this does is use the first spouse’s $5 million “coupon” at the first spouse’s passing.  Now, when the surviving spouse passes, he or she only owns $5 million, which can then be passed estate tax free.

At Powers & Neal we are dedicated to helping people plan for the future.  Whether a living trust or will-based estate plan is right for you, we can help you find the best solution for you and your family.  Please call Scottsdale trust attorney Abigail Neal at 480-699-7992 to schedule an appointment to discuss your estate plan.