Setting up a Living Trust
Are you beginning the process of estate planning? Consider if a living trust is right for you and your needs.
Organizing your assets is a detailed process that requires serious thought and prioritization. Many times, decisions involved with drafting a will – which legally documents who should receive your assets after your death – can be complicated. Considerations include not just who you want to control your estate, but also how the distributions occur over time. As a result, many people look beyond wills and set up living trusts.
A living trust is probably the best strategy to avoid probate and protect your financial security. A living trust is a legal agreement under which you transfer assets to the trust, which is managed and administered by a trustee on behalf of one or more people who you have designated as beneficiaries. You can serve as your own trustee during your lifetime or you may want to choose another person or organization to handle the responsibility for you.
The Benefits of a Living Trust
1. You want to avoid probate.
Probate is the procedure by which the state validates a will’s authenticity and oversees the estate settlement process. Probate can be a lengthy, costly process that also would make the details of your estate accessible to the public. The assets in your trust generally won’t be subject to probate.
“There are significant probate and advisor fees in probate,” says Professor Ted Kurlowicz, who teaches estate planning at The American College in Bryn Mawr, PA. “You should not minimize its impact.”
A living trust, on the other hand, does not have to go through probate and therefore isn’t subject to the lengthy, public and potentially costly process.
2. You want to simplify your estate for your family.
If you own numerous properties, investments, business interests or life insurance policies, your loved ones may not want the responsibility of managing your estate. A living trust can simplify matters for them. Upon your death or disability, the named trustee can step in and manage your assets according to the terms in your trust.
3. You want to provide for your beneficiaries beyond your death.
“A living trust can provide for ongoing management and distribution of your assets allowing you to continue to provide for your beneficiaries beyond your death,” says Kathy Dickason, Senior Vice President, Personal Trust Manager with First Midwest Bank. “This cannot be accomplished with a will because that is a document designed to distribute your assets outright to your beneficiaries upon your death.”
For example, a living trust allows you to organize your estate so that it will pay for your children’s or grandchildren’s education or distribute assets to your children at various ages. In contrast, assets passing under a will are distributed to your beneficiaries at the time of your death, Dickason says.
When You Know It’s Right For You
1. You are concerned about estate taxes.
Dickason says the provisions in a living trust can be structured to organize and distribute your assets so as to minimize your estate’s potential estate tax liability.*
2. You have complex assets.
A living trust can contain all types of assets – from an investment portfolio to collectibles to a closely held business. “A trust can provide for effective ongoing management and preservation of your assets by the named trustee. Your family may not have the time or expertise to manage the assets,” Dickason says.
3. You’ve had multiple marriages.
A living trust is flexible in that it can provide for various beneficiaries over the life of the trust. For example, your trust can pay income to your spouse for his or her lifetime, then distribute the remaining assets to your children upon your spouse’s death.
4. You want control over your assets after your death.
A trust allows for the flexibility of stipulating each beneficiary’s inheritance or distribution and dictates how the funds are to be used. For example, a trust can stipulate that your child may only receive a distribution to pay for a college education and then receive the balance of their share of the trust upon graduation. A trust also can stipulate at what age a beneficiary can receive a distribution. For example, the trust can provide for the beneficiary to receive half of their share at age 30 and the remaining balance at age 45.
A living trust is a flexible and versatile estate planning tool. You can name one or more beneficiaries, and even change the beneficiaries. You can name one or more trustees, alter their duties, add or withdraw assets from the trust, change the terms of the trust or end the trust altogether. You can transfer a variety of assets to your living trust and since you specify how you want the trust managed, you won’t lose control of the assets.
When someone passes away, the last thing their loved ones want to do is calculate assets and make sure bills are being paid. That’s why Kathy Dickason, Senior Vice President, Personal Trust Manager with First Midwest Bank, emphasizes the importance of being prepared. She says a trust specialist can help you with the planning process by asking a series of questions, such as:
Where do you ultimately want to see your assets go?
Are you trying to provide for children and/or grandchildren?
Are you concerned about estate taxes?
Are you passing on a business?
Do you plan on having more children?
Who should inherit the bulk of your estate?
Have your heirs made the wisest financial decisions in the past?
“We ask you what you’re looking for and explain what your options are,” Dickason says. “We talk to you about your goals.”
If you’re interested in setting up or learning more about a living trust, call a First Midwest Trust Officer at 1-800-241-1749 or visit firstmidwest.com/trustee.