What is a living trust?
We have previously covered the basics of what a trust is. There are many different types of trusts to be learned. Let’s discuss “Inter Vivos”, or Living trusts. A living trust spells out what is to be done with your assets, dependents, and your heirs. It is created by you (the grantor) during your lifetime. Sounds like a Will, doesn’t it? The difference between a living trust and a Will is that a Will becomes effective only after you die, and it has been entered into probate. The living trust, if used correctly, has (among other things) the effect of bypassing the process of probate. It also allows your successor trustee (similar to the executor of a will) to carry out your instructions as documented in your living trust at your death.
So who is a living trust appropriate for? It’s most appropriate for individuals who have complex financial or personal circumstances, such as substantial assets, a blended family, closely held business interests, or property in other states. It can be used for some estate planning purposes in some states, and it has some utility when cleverly used as a “standby” special needs trust. A lot of those features are available by taking advantage of one particular feature of trusts – revocability. With a revocable living trust, you transfer your assets into the ownership of the trust. You retain control of those assets as the trustee of your revocable living trust. You can change or revoke the trust at any time you want. The assets in the trust pass directly to your beneficiaries without going through probate upon your death. However, neither wills nor revocable living trusts avoid or minimize estate taxes.
By contrast, an irrevocable trust allows you to permanently and irrevocably give away your assets during your lifetime. After you give away these assets, you have relinquished all control and interest in these assets. Due to that fact, these assets are no longer considered part of your estate and aren’t subject to estate taxes. As you likely imagine, an irrevocable trust is appropriate in specific circumstances and they need to be used with care, because they're difficult or impossible to undo in New Jersey. Sound complicated? That’s what I’m here for! Give me a call
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