Erickson Financial Solutions Blog
Link to 1-minute video: What's the Difference Between a Will and a Living Trust?
What does a Living Trust do?
There are two basic types of trust, revocable and irrevocable, and each has more specialized type trusts that might be encountered. Here we talk about the “Living Trust.”
A Living Trust is created, usually with the help of a local attorney, to control the disposition for your assets while you are alive and after your death. It is a document with written instructions on how the assets are to be used especially when you are not able to make a decision for yourself regardless whether your inability to decide is permanent or only temporary. The document identifies the trustee – that is the person who makes the decisions – and beneficiary - the person for whom the decisions should benefit. Essentially the trust becomes your legal alter ego.
Before you worry about giving everything away to a trust and losing control to someone else, understand the Living Trust can name you as the trustee and beneficiary. So, while the asset are not technically in your name you retain control. As an aside, since you retain control, there are no tax advantages to these types of trust.
Once the trust is establish and the assets placed in the trust, you live your life as you normally would except when you draw cash from the bank, sell something held in the trust, or write a check off the trust account, it comes from the trust.
When you die, the trust lives. The instructions of the trust describe what is to be done with the assets and who will control the disposition, if any, of assets. If married, a surviving spouse can be the trustee and beneficiary so the assets stay in the family.
The Living Trust bypasses the cost, hassle, and time delay of having to go through a court procedure called probate – a great benefit for larger estates and for those you leave behind.
One benefit of creating a trust is that you actually must put into writing what you want to happen – it can cause you to focus on what is really important to you.