Actually, there are many good reasons why having a living trust as part of your estate plan is a great idea. One of the most common reasons is avoiding, probate. However, there are many more important benefits of a living trust. For instance, including a living trust will allow you to protect property for your beneficiaries, while reducing estate taxes and planning for possible incapacity. If you are trying to decide whether a living trust should be included in your comprehensive estate plan, understanding some of the benefits of a living trust can help make your decision easier.
Protecting Property for Minors and other Beneficiaries
One very important purpose of a living trust is to protect an inheritance for those beneficiaries who need assistance in managing that inheritance. A trust provides the protection that a simple will often cannot. Because we are unable to anticipate when we may die, the possibility that our intended beneficiaries may still be minors when they inherit, is something that should be planned for.
In fact, in many states, minors are not allowed to own property because they are assumed to be too immature to manage that property appropriately. In those situations, a guardian would need to be appointed. The guardian would then be responsible for managing that property until the child becomes an adult, according to the laws in your state. Of course, minors are not the only ones who may need assistance in managing an inheritance. Others, for various reasons, may also be incapable of handling large sums of money in a prudent manner. By creating a trust, you can leave your money and other assets to whomever you choose, while protecting that property for them, if necessary.
Reducing or Eliminating Estate Taxes
There are no specific provisions in federal tax law that allow revocable living trusts to be exempt from estate taxes. But, there are certain deductions and tax credits that you can take advantage of, if you know how. One example is the unified credit, which is currently $5.34 million. This credit essentially allows you to transfer up to that amount of property to your beneficiaries, estate tax free. Additionally, any property that you transfer directly to your surviving spouse is exempt from federal estate taxes, as well. This is possible through the unlimited marital deduction. On the other hand, any part of your estate that is not sheltered by these exemptions will be subject to the current 40% federal estate tax.
A revocable living trust can eliminate estate taxes easily. This is how it works. Using the exemption, you can transfer a portion of your estate to a revocable living trust, instead of leaving everything to your spouse. Then, your spouse could be the primary beneficiary during his or her lifetime, and the money would be accessible whenever needed. The remainder of your estate would then pass to your children or other heirs upon the death of your spouse. Doing it this way, federal estate taxes will not be due upon your death, because the property you transfer to the revocable trust will be exempt from federal estate taxes. The same would apply when your spouse dies, because the property being held in trust is not considered part of his or her estate, either.
If you have questions regarding revocable living trusts, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.
- What Does it Cost to Probate an Estate in California? - January 24, 2023
- What Is Missing in Your Estate Plan? - January 22, 2023
- Common Probate Mistakes and How to Avoid Making Them - January 19, 2023