Dear Clients and Friends of Cornerstone:
Do you have a Living trust? Should you have a Living Trust? This month’s article outlines the different types of living trusts as well as the advantages and disadvantages of moving certain assets into a living trust. It is often a complicated question, but your advisor can help you determine if a trust would be beneficial in your estate plan.
If you would like to refer back to any previous newsletters we have published, you can find them on our website. Please be sure to visit www.ccadvisors.com.
– Cornerstone Capital Advisors
Answers to Your Questions About Living Trusts
Living trusts have become popular estate planning tools, but they are not for everyone. Here are some frequently asked questions to help you decide whether to consider a living trust.
Q. How does it work?
Answer: With a revocable living trust, you transfer ownership of assets of your choice to a trust while you’re alive. The trustee then administers the trust according to the terms. You can keep any – or all – of the income from the trust, act as the trustee, change the provisions, or even terminate the trust.
However, once you die, a successor trustee will take over and the trust then becomes irrevocable – meaning no further changes can be made. The trust can continue to exist or be terminated, with the assets distributed to heirs or to another trust.
Q. What are the advantages of setting up a living trust?
Answer: There are several potential benefits to a living trust including:
Q. What are the disadvantages of living trusts?
Answer: Living trusts also have several potential disadvantages, including:
Q. Do living trusts save estate taxes?
Answer: Because you retain control of the assets during your life, a living trust does not reduce estate taxes by itself. You can, however, make provisions in your living trust to take advantage of your federal estate tax exemption and you can set up other trusts that help reduce estate taxes.
Q. Is a will necessary when a living trust is in place?
Answer: In most cases, you still want a pour-over will that covers the disposition of any assets you left out into the trust. If you have minor children, you also need a will to name a guardian for them.
Q. Do all assets have to be placed in a living trust?
Answer: You decide which assets should be placed in the trust. Assets with beneficiary designations, such as life insurance, individual retirement accounts, and retirement plans generally are not transferred to the living trust, although the trust can be named as beneficiary. Before taking action, however, you should check with your estate planning advisor about the income and estate tax ramifications.