A living trust is a useful tool for managing your estate assets both while you are still alive and after your passing. This type of trust protects your assets, removes them from the probate process, and can potentially save your beneficiaries significant money when it comes to paying taxes on your estate. At The Inheritance Recovery Attorneys, our team of experienced trust litigation attorneys can walk you through the process of establishing a living trust and explain how this type of estate planning tool can benefit you and your loved ones.
What is a Living Trust?
A living trust is a legal arrangement in which a trustee holds legal title to property for another person, known as the beneficiary. You are allowed to be the trustee of your own living trust, unlike other types of trusts. This legal tool is called a living trust because it can be established while the creator of the trust is still alive, unlike other types of trusts that are created upon the death of a person as dictated in a will. In a living trust, the beneficiaries receive the assets of the trust when the creator of the trust dies.
A living trust can either be revocable or irrevocable. A revocable trust gives autonomy to the trust creator to make changes to the terms of the living trust while alive. An irrevocable trust is just that, unable to be revoked or changed once the trust is established. An irrevocable trust also normally requires someone other than the creator of the trust to serve as trustee.
How Does a Living Trust Decrease Taxes?
In certain situations, a living trust can help decrease your taxes. California does not have a state estate tax, but the federal government can levy taxes on your estate after your death. The greatest tax benefits are found with irrevocable living trusts. Any assets in an irrevocable living trust are not considered taxable property by the federal government. If the value of your estate exceeds the federal limit, all assets over the limit will be assessed a federal estate tax. By placing assets in a living trust, you may be able to avoid hitting the federal estate tax threshold and your estate will be exempt from all estate taxes.
In addition, you may also gain some taxable benefits from a living trust while the creator is still alive. If assets are placed in an irrevocable trust that has a third party as the trustee, the creator of the trust is not responsible for paying income tax on those assets. However, if the creator of the trust or their spouse is the trustee, or the living trust is revocable, the trust assets are still subject to income tax requirements. An experienced attorney will be able to review your estate assets and advise you on all of the potential tax benefits of a living trust.
Other Benefits of a Living Trust
There are also other benefits to establishing a living trust for your estate. First and foremost, it gives the creator of the trust peace of mind knowing that the assets in the trust will be distributed according to their wishes. Second, a living trust can provide stability and knowledge to the trust beneficiaries and help avoid any conflicts that may otherwise arise during the probate process.
Speaking of probate, all assets placed in either a revocable or irrevocable trust are not subject to the probate process in California. Probate refers to the process that many estates must pass through in the California court system where a judge oversees the administration and distribution of the estate. Depending on the size and complexity of the estate, probate can take months or even years to complete. Probate occurs in open court, which is available to the public in court records. However, because assets in a living trust are not subject to probate, they can remain private and out of the public eye. Trust assets can also be distributed much faster given the fact that they are not subject to the slow court process of probate.
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A living trust can be a powerful tool for helping your family avoid serious taxes after your passing and ensures that your estate will be distributed according to your wishes after your death. To learn more about living trusts or other estate planning tools available to you, call or contact our office at The Inheritance Recovery Attorneys today to schedule a free consultation of your legal needs.