 Personal Finance PowerPoint Presentation Living Trust Prepare to get financially fit by practicing personal finance Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category, further broken out by course Each course then organized in a logical, reasonable fashion Making it much more easy to find what you need than can be done on a YouTube page We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable So once again click the link below for a free month membership to our website and all the content on it Most of this information comes from Investopedia Living Trust which you can find online Take a look at the references, resources continue, your research from there This is by James Chen, updated February 21, 2022 In prior presentations we've been taking a look at retirement planning then estate planning now looking at components often used in estate planning this time that being the Living Trust First question, what is a Living Trust? So a Living Trust is a legal document or trust created during an individual's lifetime the trustor or grantor were a designated person the trustee is given responsibility for managing that individual's assets for the benefit of the eventual beneficiary So if we look at the estate planning process that we outlined in a prior presentation we're at the point before death so the person is still living trying to manage how they're going to make the process after death as easy as possible which of course typically includes the will but now we're putting together, we're thinking about a Living Trust here So let's read that one more time, keeping that in mind A Living Trust is a legal document so clearly we're putting together a document or trust created during the individual's lifetime so the person has not yet died during their lifetime they are the trustor or grantor where a designated person, the trustee, the trustee then being assigned is given responsibility for managing that individual's assets for the benefit of the eventual beneficiary the eventual beneficiary being so that the person is managing the assets kind of like as an executor on behalf of the eventual beneficiary that's going to be receiving the benefit of those assets after the point of death typically So a Living Trust is designed to allow for the easy transfer of the trust created or settler's assets while bypassing the often complex, plex and expensive legal process of probate So we've talked about the process in prior presentations often going through the probate, if you've got the will for example then the will still needs to go through the legal process possibly of probate in order to determine the accuracy of the will that it's the actual will, the authenticity of the will and then assign the executor in accordance with the will if it's determined to be the legal will that can be an expensive time consuming process so if you can make it as easy as possible possibly including the Living Trust that could be a good way to go clearly you've got to weigh the pros and cons in terms of how much more complexity you want to put in process for your estate planning if you don't have a lot of assets involved it might not be as big an issue you might want to just set up of course the will in general if as you get more assets that you're going to be needing to allocate as you get into a state taxes or the complexity increases with dependence or multiple marriages or something like that then you might need more planning involved more tools used Living Trust agreements designate a trustee who holds legal possession of assets and property that flow into the trust how Living Trusts work Living Trusts are managed by a trustee who typically has a fiduciary duty to manage the trust prudently and the best interest of the trust's beneficiary or beneficiaries designated by the trust settler also called a grantor so clearly now you're having someone manage the trust and they might be paid in order to manage the trust they're acting somewhat as an agent in order to manage that well in accordance with the needs or the ultimate beneficiaries upon the death of the settler these assets flow to the beneficiaries according to the grantor's wishes as outlined in the trust agreement so unlike a will however a Living Trust is in effect while the settler is alive and the trust does not have to clear the courts to reach its intended beneficiaries when the settler dies or becomes incapacitated so I'm going to try to recap that here this is my disclaimer so take it with a grain of salt we're saying that before the point of death the person's trying to plan out what's going to happen at the point of death to their assets how are those assets going to be allocated typically we think of a will as the tool used to do that but the will takes effect at the point of death and typically needs to be verified through the probate process which can be a costly and timely exercise so then the question is can you use some kind of tool to bypass that process well we might be able to transfer the assets to something similar to say a corporation remember what a corporation is is a separate legal entity that lives beyond the life of any one individual can actually basically own assets so we're not going to put it to a corporation we're going to put the assets instead into like a trust which you can think of as a similar kind of function it's holding the assets now the trust is like the legal thing that owns the assets and then is controlled in accordance with the terms of the trust in a similar way as the corporation is controlled by the shareholders and the board of directors and so on and so forth the point being that at the point of death then because the trust is now holding it the trust has its own rules of what it's going to do at the point of death which you can think of as basically the will part of the living trust so you still have kind of like the will kind of component of the living trust because that's going to be the thing that lists out what you want to happen at the point in time of death but hopefully as you package this into the living trust then because that was in place before you died you don't have the same kind of requirements to go through the probate process but of course then you've got to deal with transferring everything into the living trust and the legal costs and so on that are associated with it so you have the same kind of disclaimers or the same kind of thought process do you need that? Usually if you don't have as much on the assets or if you don't have a lot to allocate maybe a will is what you need and that will be fine as things become more and more complex some more of these more advanced tools might be something to that would be worth the while so types of living trusts living trust can be irrevocable or revocable with a living revocable trust the trust settler can designate himself or herself as the trustee and take control of assets within the trust now when you set up these trusts it becomes kind of an issue often times when you look into the estate planning because on the estate planning side of things remember what happens here if you're going to be taxed by the government when you die they're going to pile up all your assets and then try to tax some of it what you would like to do is give away all your assets right before you die then but now they've set up all these rules to stop you from doing that one way to try to get around that is to try to set up these trusts that's to say hey I don't own the assets the trust owns the assets but then you get into all this complexity in terms of well do you have control of what the trust is doing or not if you do then the courts are going to say well you still own the assets and we're still going to tax you on them so when you get into that kind of thing it gets all complex for the estate taxing with regards to tax planning so however this stipulation means the assets in the trust remain a part of the trust settler's estate right because you still have control over you can't say well the trust owns it I don't own it well you own the trust right if you put it in the trust controls what that money does then you don't own it anymore possibly so meaning the individual may still be liable for estate taxes should the estate be valued beyond the estate tax exemption at the time of death again that's only really applicable if you have a fairly large estate or subject to estate taxes the trust settler also has the power to change and amend trust rules at any time this means the trust settler is free to change beneficiaries you can do the trust altogether with an irrevocable living trust the settler relinquishes certain rights to control over the trust so now it's no longer yours you can't direct it so there's different consequences 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 set and the settler can do little to amend that agreement so obviously that could be good for estate taxes but now the person most people want control over their money and still want it not to be included in taxes so that's where the difficulty happens asset assignment within living trust a living trust itself can be named the beneficiary of certain assets which would otherwise flow directly to the name beneficiary regardless of what is stated in a will so these include employer sponsored retirement accounts such as 401k's individual retirement accounts to IRA's life insurance policies and certain bank accounts such as payable on death POD accounts living trust can include accounts held in trust which are created during the settler's lifetime and are not established upon death as designated in a last will and testament is a living will the same as a living trust no a living will is a directive written by an individual granting power of attorney and other rights to a trusted other if that individual becomes incapacitated or loses the ability to communicate so a power of eternity basically means they're kind of acting in essence on your behalf a living or inter vivos trust establishes a legal entity similar kind of to like a corporation this now this new legal entity now has some rights including say rights to say own property in a similar way as a corporation for example that's the trust which holds assets that can be distributed without probate to beneficiaries after one's death how much does a living trust cost establishing a living will usually require an attorney according to the legal zoom in the U.S. a recoverable living trust will cost on average one thousand dollars to one thousand five hundred dollars for an individual one thousand five hundred dollars to two thousand dollars or more for a couple because of their greater complexity a irrevocable trust may often cost more so you might use the irrevocable trust might be more common if you're trying to do some more advanced estate planning types of situations you would think so these costs will vary by location and from law firm to law firm what are some disadvantages of living trusts the downside of trust aside from their cost will depend on whether it is a revocable or irrevocable trust each of which serves its own purpose so clearly there's a big difference between the revocable and irrevocable a revocable trust is not sheltered from tax authorities or creditors which limits its usefulness as a way to protect assets while one is still alive so in other words if you're using it as kind of like a shield kind of like a corporation has a seal that's going to help you reduce liability protection well because you still control the trust if it's revocable then you don't have as much of a similar as a corporate shield kind of things right so an irrevocable trust involves four fifteen all ownership and control of the assets put inside of it along with very little flexibility and how the trust can be directed after it is established so if it's irrevocable now you've lost the control of it which is kind of the point often times for estate planning but that comes with the cost of not being able to do stuff with it after it's set up very easily