A trust, life trust or living trust in English, is a legal document created during the life of a person. Through it, a designated person, the trustee, is in charge of managing the assets of that person in favor of the final beneficiary.
A testamentary trust is designed to allow for the easy transfer of assets from the trust creator or settlor, avoiding the complex and costly legal process of probate.. Living trust agreements designate a trustee who has legal possession of the assets and property flowing into the trust.
- A Living Trust is made up of three parts: The Trustee, Trustee and the Beneficiary.
- A living trust appoints a trustee to manage the beneficiary’s assets while the grantor lives.
- Trustees with fiduciary duty manage trusts in accordance with the best interests of the beneficiary.
- Living trusts can be irrevocable or revocable.
How do living trusts work?
Living trusts or living trusts are managed by a trustee who normally has a fiduciary duty to manage the trust prudently. This must generate a benefit to the grantor or grantors of the trust designated by him, also called the settlor.
Upon the death of the settlor, these assets pass to the beneficiaries, in accordance with the wishes of the grantor, as stated in the trust.. However, unlike a will, A living trust is in effect as long as the settlor is alive. Also, the trust does not have to authorize the courts to reach its intended beneficiaries when the settlor dies or becomes incapacitated.
Types of living trusts
Living trusts can be revocable or irrevocable.
With a revocable living trust, the settlor can appoint themselves as the trustee and take control of the assets within the trust..
However, this provision means that the assets in the trust remain part of the settlor’s estate, which means that the individual may still be liable for taxes on the estate if the estate is valued beyond the estate tax exemption. at the time of death. The settlor also has the power to change and amend the rules of the trust at any time. This means that the settlor of the trust is free to change the beneficiaries or undo the trust entirely.
With an irrevocable living trust, the settlor relinquishes certain control rights over the trust.
The trustee effectively becomes the legal owner, but the individual would also reduce their taxable estate. Once the trust agreement for an irrevocable living trust is made, the named beneficiaries are established and the settlor can do little to amend this agreement.
Asset allocation within living trusts
The living trust itself You may be named the beneficiary of certain assets that would otherwise flow directly to the named beneficiary, regardless of what is stated in a will. These include employer-sponsored retirement accounts like 401(Ks), individual retirement accounts (IRAs), life insurance policies, and certain bank accounts like Payable On Death (POD) accounts. Living trusts can include trust accounts, which are created during the settlor’s lifetime and are not established at death as designated in a will.