4 Reasons to Create a Living Trust

A living trust is an estate planning tool that many individuals choose to utilize. This type of trust can provide you with a number of benefits when planning for the future. Here are a few reasons to consider creating a living trust.

1. Manage Property after Incapacitation

As we get older, the odds increase that we will become incapacitated at some point. When this happens, you can no longer control your assets or make important decisions. If you want to protect your assets and avoid losing them whenever you become incapacitated, you might want to consider utilizing a revocable living trust. This is an arrangement that allows you to appoint a trustee to handle your decisions if you are incapacitated. They can move assets into the trust once you become incapacitated and will then manage them for you.

2. Help Family Avoid Probate

Another good reason to create a living trust is so that you can help your family members avoid probate court. If you do not have a living will whenever you die, your family will have to go through the probate court process in order to determine who gets all of your possessions. This can be a long and drawn out process that is very taxing on your loved ones. By simply creating a living trust, you can help them avoid this process and have some control over where your assets end up.

3. Avoid Estate Taxes

By using a living trust, you will be able to avoid or completely eliminate estate taxes. Using a living trust will not directly allow you to get around estate taxes. However, if you are married and you have a sizable estate, it can make a significant difference. For example, let's say that you and your wife both have estates of $1 million each. If you die and pass your $1 million onto your spouse, your spouse will not have to pay any estate taxes. However, whenever your spouse dies and tries to pass on $2 million dollars to your children, they will have to pay estate taxes on $1 million if the estate tax threshold is $1 million. This would potentially result in a 45 percent tax on the money. 

By comparison, let's say that you decided to put your $1 million into a living trust instead of giving it to your wife. Then, whenever your wife dies, she will be able to pass her $1 million to your children and your children can also receive a $1 million from the trust. Your kids ended up getting the entire $2 million without paying any taxes.

4. Avoid Giving Inheritance to Younger Children

You can take advantage of a living trust if you have a sizable estate and you do not want to give your younger children a large amount of money all at once. With a living trust you can disburse it to your children once they reach a certain age. If you are worried that they will squander the inheritance when they are young, this can be a great technique to use.

Declaration of Trust

A declaration of trust is a statement that can be made by one individual that says he is keeping a piece of property for someone else. The declaration of trust is made when a trust arrangement is set up. The individual that makes the statement acts as a trustee on behalf of someone else. He will take care of the property and make sure that it is maintained properly for a certain amount of time. A beneficiary will also be designated who could potentially receive the property at a point in the future. The declaration of trust can be made orally or in writing depending on the jurisdiction.