Clients sometimes ask me, “Aren’t living trusts just for rich people?” Granted, a living trust is the foundation of many wealthy families’ estate plans. However, living trusts have numerous benefits — whether your net worth is $500,000 or $20 million. Here are three reasons why:
- Probate Avoidance – If a deceased person left property and assets titled in his or her name alone, then probate is necessary to transfer such property and assets to the deceased’s heirs or beneficiaries under a will. Probate is costly and time-consuming. Furthermore, details of the deceased’s estate and who’s receiving it must be filed with the probate court and thus becomes public knowledge. By establishing a fully-funded living trust, one can avoid probate.
- Income and Capital Gains Tax Planning – While Oklahoma eliminated its estate tax in 2010 and the federal estate tax exemption is currently $5.45 million, there are other tax issues to consider. Retirement accounts potentially carry significant income tax consequences for the beneficiaries, which one can minimize utilizing proper planning through a living trust. In addition, a living trust may help limit capital gains taxes to your heirs and beneficiaries on the sale of property after you pass away.
- Control of Distributions – If any of your beneficiaries are in an unstable marriage, have creditor problems or work in profession with a high risk for malpractice lawsuits such as doctors and lawyers, it probably does not make sense to leave them money outright. With a living trust, one can instruct their trustee to make distributions to beneficiaries in the trustee’s sole discretion or only for certain purposes like health care or education. This not only provides a level of asset protection but also ensures that your hard-earned money is spent how you would have wished it to be spent.