Living Trusts: Frequently Asked Questions
A living trust is one of the most talked-about estate planning tools, and also one of the most misunderstood. These answers explain what it does, what it does not do, and whether it might fit your situation.
What is a living trust?
A living trust, also called a revocable trust, is a legal arrangement you create while you are alive. You transfer assets into the trust, and a trustee manages them for your benefit. Most people serve as their own trustee at first and name a successor to take over when they die or become unable to manage their affairs.
What are the main advantages?
A properly funded living trust can allow assets to pass to your heirs without going through probate, the court process of validating a will. That can save time and keep your affairs more private. It can also provide for management of your property if you become incapacitated, without a court-appointed guardian or conservator.
Does a living trust save income or estate taxes?
Generally not by itself. A revocable trust is treated as yours for income tax purposes during your life, and its assets are normally included in your taxable estate. Trusts designed for tax savings are different and are usually irrevocable, which means you give up control. Be wary of anyone who sells a basic living trust as a tax shelter.
What does "funding" the trust mean?
A trust only controls the assets that have been retitled in its name or are directed to it. That may mean deeds for real estate, new account titles for bank and brokerage accounts, and assignments for other property. Trusts that are signed but never funded are a common problem and can leave heirs in probate anyway.
Do I still need a will?
Usually yes. A "pour-over" will catches any assets you forgot to place in the trust and directs them into it. A will is also where parents typically name guardians for minor children.
What about retirement accounts and life insurance?
These pass by beneficiary designation, not by will or trust. Naming a trust as beneficiary of a retirement account has income tax consequences and needs careful drafting, so discuss it with your attorney and tax advisor first.
Is a living trust right for me?
It depends on your assets, your family situation, where you own property and how important privacy is to you. For some people, a will and well-chosen beneficiary designations are enough. A Georgia estate planning attorney can draft the documents, and we can help you think through the tax and financial side.
If you are weighing a trust against other options, contact our firm and we will help you look at the tax angle.
This article is general information, not tax, legal or investment advice for your specific situation.