Follow @robertjacobs01 The Revocable Living Trust is an estate planning tool not just for billionaires. Depending on the direction of your financial plan, it may be good option for you and your loved ones.
Nuts and Bolts of the Trust
A trust is similar to a will. It is a vehicle that distributes your assets after your death. There are multiple types of trusts and they should be set up by an attorney.
There are two types of trusts, a simple (living or revocable) and a complex (irrevocable).
A simple trust is an entity that forwards income to designated beneficiaries, but no principle is distributed. A complex trust is an irrevocable trust that either can generate income or distribute principal.
The Revocable Living Trust
The creator of the trust is the “grantor” and the receiver of the benefits are called beneficiaries or trustees. The “Living” Trust itself is not operable until it is funded with assets.
The trust is funded by the trustor, who funds the trust by transferring assets into the trust. A trust serves as a substitute for will by designating who gets what.
The “Living” Trust is the simplest trust to set up, that is why it is called “simple.” Unlike an irrevocable (complex) trust, it can be changed, or eliminated at any time. This is especially helpful if a beneficiary ticks you off, you can remove them as a beneficary at anytime.
A “Living” trust has several advantages over a will, they include:
- It can avoid probate meaning it is private and avoids public record (private)
- Very difficult for someone to contest
- The assets held by the trust immediately go to the beneficiary upon your death
- Assets in the trust can be sold and new assets can be bought within the Trust
- Taxes may be avoided or reduced
Why Get a Living Trust?
I recommend you do this when:
- You have a fully funded emergency fund of three to six months of expenses
- You are debt free including your home mortgage
- Have built up a significant nest egg for retirement
- You have real estate other than your home
- Net worth of greater than $500,000 (a half millionaire or more)
A Living trust can be expensive to set up, but if done right, they work faster than executing a will. If you are in a place or close to being able to set up a trust, then it is worth looking into. This is called being diligent.