Estate Planning - Revocable and Irrevocable Living Trusts
Estate planning* is an essential part of the long-term financial planning process. Many people don’t like to talk about possible health issues, death, taxes or the possibility of running out of money. They consider these topics scary, depressing and confusing. Financial and estate planning create the exact opposite reality. It’s about your life and your loved ones. The right time to begin estate planning is right now.
The living trust is a written legal document which can be used to replace a will as the primary estate planning vehicle. The revocable living trust may be revoked or amended at any time by the grantors as long as they are still competent. Some estate plans can include irrevocable living trusts, principally to accomplish tax planning, which cannot be changed or revoked once they have been executed.
The main difference between a will and a trust is that a will goes into effect only after you die, while a trust takes effect as soon as you notarize and transfer assets to the trust. A will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a trust.
The creator of the trust, also called the grantor is usually the trustee in charge of managing the assets. This allows the grantor to remain in control of the assets during his or her lifetime. The grantor appoints the successor trustee who will take over if he or she becomes incapacitated. For all practical purposes under this living trust definition, nothing changes in the way the grantor manages or controls the assets after they are put in trust. The only difference is the named owner. You own the trust, and you have the right to buy, sell, or give property though the property is in the trust's name rather than your own.
Another very important difference between a will and a trust is that a will passes through probate and a court supervised guardianship or conservatorship in the case you are incapacitated and unable to make medical decisions for yourself. That means that a court oversees the administration of the will. A trust passes outside of probate, so a court does not need to oversee the process, which can save time and money. To make sure doctors follow orders related to your health, you need a durable power of attorney for health care and an advance directive. These two items instruct the doctor and designate a person to make decisions for you in terms of health care.
If you have young children, selecting someone to care for your minor children may be one of the most difficult aspects of planning your estate. And yet if you cannot decide or agree on guardianship for your child or children, you will be leaving that decision to the state. You can avoid potentially disastrous court hearings and make a tremendous difference in your child's life by planning ahead. Take some time now to think about what you value most in life, and in raising children. One way is to name members of one family as physical guardians to care for the children, and members of the other family as financial trustees, to manage the assets for the children. Another way is to name members of both families to the Guardianship Panel.
It’s important to keep your will and estate documents up to date. Make changes whenever an important event such as marriage, divorce, death, or the birth of child happens in your life.
Please feel free to contact me with questions related to estate planning as a part of your financial plan.
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* The information contained in this article is not intended to provide financial, insurance, legal, or tax advice and should not be relied upon as a basis for investment, legal or tax decisions. The information contained in this article is not designed to meet the specific needs of individual investors. We recommend that you consult with your investment professional, legal and/or tax advisor concerning your own individual situation.