Mike McAninch is a Practice Integration Advisor with Buckingham Strategic Wealth, where he specializes in helping dentists connect their money and their values to realize their most important financial goals.
Most estate plans include a will that identifies who should receive your assets upon your death. Under most state laws, a court-supervised process called probate completes the legal transfer of your assets as dictated by your will. Probate activities typically are a matter of public record and can be both expensive and time consuming.
A living trust is an estate-planning tool to pass on property to your heirs while generally avoiding the costs and delays associated with probate. Also by avoiding probate, the disposition of your assets does not become part of the public record.
Even though as the rules stand today most people will not be subject to federal estate taxes, living trusts can help minimize such taxes in some cases where they do apply.
Before I go further, please note: I recommend that an experienced and competent estate-planning attorney create the legal documents making up your estate plan, including a living trust.
To create a basic living trust, you (called the grantor or settlor) transfer ownership of some or all of your property to the trust entity. Because you make yourself the trustee, you don't give up any control over the property you put in trust. If you and your spouse create a trust together, you will be co-trustees.
In the trust document, you name the people or institutions you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time.
When you die, the person you named in the trust document to take over – called the successor trustee – transfers ownership of trust property to the people you want to get it. In most cases, the successor trustee can handle the whole thing in a few weeks with some simple paperwork.
What assets should you put into a living trust? Assets you may want in your trust include real estate, bank/savings accounts, investments, business interests and notes payable to you. You will also likely want to change most beneficiary designations to reflect your trust, so those assets will flow into your trust and be part of your overall estate plan.
If you are married, consider NOT naming your living trust as your beneficiary on IRAs and other tax-deferred retirement plans (such as 401(k) and defined benefit plans). Instead, name your spouse as beneficiary. In this way, your retirement funds are immediately available to your spouse (via a rollover IRA).
In our next article, my colleague, Katie Collins, will explore the taxation of your inheritance. Have questions in the meantime? Please reach out to any of Buckingham’s Practice Integration Advisors.