Tuesday, October 16, 2012

How a Living Trust Protects your Loved Ones


               There are many types of trusts and each of them is beneficial in the right circumstances. Today I want to talk about the commonest form of trust, the “Revocable Trust”, also sometimes called the “Living Trust”. 

The first benefit of the Living Trust is that it is revocable—you can change it as many times as you like for any reason, or no reason, as long as you are alive and competent. 

               As your financial situation or family situation changes, your Living Trust can change with it to provide your loved ones with the protection you desire. Living Trusts are particularly useful for the following three reasons:

  1. AVOIDING PROBATE: In Michigan, any asset titled in your name alone, must pass through the probate process at your death. The probate process can be expensive, time consuming and very public. If you transfer assets to your Living Trust, you control them because you are the initial Trustee and only beneficiary during your lifetime, and your successor Trustee administers the assets for your loved ones following your death, without any probate required. 
  2. REDUCING OR ELIMINATING FEDERAL ESTATE TAXES: If your estate exceeds the current exemption from estate taxation (currently $5,000,000 per person but scheduled to be reduced to $1,000,000 in 2013), the Living Trust can be drafted to insure both spouses’ exemptions are used and estate taxes are eliminated or at least delayed until after the death of the second spouse to die. 
  3. PROTECTING YOUR SPOUSE AND OTHER FAMILY MEMBERS: Perhaps the most valuable benefit of a Living Trust is the ability to protect your family by stating in advance how your loved ones receive your assets after your death. Some examples are: 
    • Provide funds to maintain the spouse’s accustomed standard of living, but limit access by creditors or impatient children. 
    • Place limits on distributions in the event the surviving spouse remarries, to insure children of the first marriage will have their inheritance protected. 
    • Place limits on how distributions can be used or when distributions occur for gifts to children and grandchildren. Restrictions can be placed on the use of income and/or principal, such as: 
      • Spreading out distributions over time or at specific ages, such as 1/3 distributions at ages 25, 30 and 35 
      • Distributing specific amounts after reaching certain educational milestones 
      • Allowing distributions only to pay for education expenses, or only partial payment of expenses if child pays the other portion. 
      • Providing for any educational need, purchase of a home, or starting a business, if the independent trustee approves. 
      • Restrictions to insure creditors or divorcing spouses are unable to reach trust assets until actually distributed to children. 
      • Restrictions to protect immature children from spending funds unwisely 
      • Restrictions for children with dependencies to protect them from a worse condition 
    • Provide "special needs beneficiaries” who are entitled to benefits through state and federal programs with funds to provide for additional assistance while protecting them from losing eligibility for government funds because of a sudden influx of assets or income. 
    • Protect elderly relatives relying on you for support by providing a fund for their use if needed. 
    • Allow you to fulfill any charitable inclinations you may have with donations at your death. 
               You have built a legacy of which you can be proud. Let a properly drafted Living Trust allow you to use and distribute it as you see fit.

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