What is a Living Trust?
A living trust is also known as "inter
vivos" trust. It is an estate planning tool to instruct how an
individual's assets should be managed, during his life and after his
death.
Do You Need a Living Trust?
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Manage your assets. As you know,
writing a last will and testament is important, so upon your demise,
your estate can be distributed or managed according to your wish. How
about when you become mentally or physically incapable, but you are still
alive? You may not be able to manage your assets. In this case, a will
may not help, but a living trust can.
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Reduce estate taxes. If you have a
well-designed living trust, you can reduce the estate taxes
considerably. This especially applicable to those who own more than
$1.5 million in assets. Those with lesser assets would make no
difference when it comes to minimizing estate tax by setting up a
living trust. If you are married, then your assets should exceed $3
million to see the effect.
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Avoid probate. People generally
use a living trust to avoid their assets from going to probate, a
process which is cost and time consuming. The trustee will succeed the
grantor (person who grant the trust) to manage his assets in the living
trust, so the court does not have to do it for him. However, even in
the absence of probate, all the debts and taxes will still have to be
cleared before disposition of estate.
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To will or not to will? When
setting up your living trust, all your assets are supposed to be
transferred to fund the trust. You can name yourself the trustee and
the beneficiary in the trust, so you can still utilize your assets.
However, it is almost impossible for you to remember every single item
you possess. That is why you need to use a pour-over will. A pour-over
will is a tool used in conjunction with a trust. Upon decease of the
grantor, his estate will be poured into the trust and form a part of
it. Using a will shall mean you cannot avoid probate.
There are pros and cons of setting up a
living trust. And there are always better reasons to set up a living
trust than to reduce estate taxes or to avoid probate.
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