Living trusts can be valuable estate-planning tools, and they offer a convenient way to centralize and manage your assets, but many Americans lack even basic estate-planning documents. According to a 2019 Caring.com survey, although three-quarters of American adults claim that having a trust and other estate-planning documents is important, fewer than half have set them up.

Why is this? Surveyed adults cite a number of reasons for putting it off. Some believe that they are not old enough or wealthy enough to begin estate planning. Others feel that it is too difficult or expensive to set up the right documents. A full 50{19e6c033b2c2bbc63db24abe0080e4026c79f759e382db21ec810f3ee5be209b} claim they “just haven’t gotten around to it” yet.

If you haven’t begun estate planning, you should know that it does not have to be expensive or difficult to start. At every age, getting the right documents in place is vital for taking care of the people you love and ensuring that your assets are handled according to your wishes, both while you are alive and after you are gone. If you’re not sure how to begin, then a living trust can be an ideal starting point.

At CaMu Document Services, our team of fiduciary advisors has more than 16 years of experience helping Valencia residents and business owners set up living trusts with confidence. Our experience and strategic partnerships allow us to offer full-package living trusts at an extremely affordable price point. If you would like to set up a trust, then please contact us to get started. Not sure if a living trust is right for you? Read on to learn more about how trusts can help you meet your estate-planning needs and your long-term goals.

What Is A Living Trust?

In the simplest terms, a living trust is a legal document that collects a variety of assets and appoints someone to handle these assets for the best interests of the trust’s eventual beneficiary. Living trusts are created during the original asset holder’s lifetime, and they are designed to streamline managing and passing on a large or complex estate. They can bypass the extensive, complicated, and public legal process of probate, and facilitate the easy transfer of the trust creator’s assets to a designated beneficiary.

Until the trust creator (or “settlor”) passes away or becomes incapacitated, the trust is managed by an appointed “trustee,” who holds legal possession of all the assets placed into the trust. The appointed trustee can be anyone from the trust creator themself (with revocable living trusts) to a family member to a professional fiduciary trustee within a financial institution. They are responsible for acting in the trust beneficiary’s best interests and managing the trust’s assets accordingly.

Once the settlor has passed or becomes incapacitated, the trust’s assets flow to the beneficiary as outlined in the trust agreement. Settlors have a certain degree of flexibility in establishing conditions for how the assets are released. This can happen all at once, or as part of a staggered process. For example, if the trust contains an account with $200,000, the settlor can arrange to have the funds released piece-by-piece as the beneficiary reaches certain milestones: $50,000 when they turn 25, another $50,000 when they turn 30, and so on.

Unlike a will, a living trust goes into effect while the settlor is still alive, and trusts do not have to clear the courts for their assets to reach their intended beneficiaries.

Revocable Vs Irrevocable Trusts

There are two types of living trusts.

Revocable Living Trusts

In revocable trusts, the trust creator can designate themself as the trustee, thereby continuing to directly manage all of the trust’s assets while they are still alive. Additionally, whether or not they name themself as the trustee, the trust creator has the power to change or amend the rules of the trust at any time. They can change beneficiaries, alter the terms of the trust, or even undo it altogether.

Revocable trusts are ideal for people who want to maintain control over their assets up until the moment that they are no longer mentally able to manage their estate due to illness or incapacitation. At that point, the trust will pass into the hands of a successor trustee until the trust settlor passes on and the assets flow to the beneficiary.

The obvious benefit of setting up a revocable living trust is that the trust settlor maintains full control of the assets within and can make amendments at any time.

Irrevocable Living Trusts

By creating an irrevocable living trust, the trust settlor permanently gives away their assets during their lifetime, thereby reducing their taxable estate. They relinquish certain rights to control both the terms of the trust and the assets it holds. The trustee becomes the legal owner of all assets, and once the named beneficiaries are set, the settlor cannot do much to amend it. They set the trust up and then step aside forever. Irrevocable living trusts can only be reversed by a judge in very special circumstances, and you shouldn’t count on this happening.

The obvious downside here is that once you place assets within an irrevocable trust, you permanently surrender ownership and control over them. If you want to access them again or make any changes to the terms of the trust, you need to get permission from the person in charge of the trust and then go through a complicated legal process. So why would someone ever choose this option over a revocable trust?

So Why Would Anyone Choose Irrevocable Trusts?

Although at first glance revocable living trusts are the superior choice (and arguably, for the majority of Americans, they are), there are several circumstances in which a person may benefit more from an irrevocable living trust.

To Avoid Federal Estate Tax

One of the biggest downsides of a revocable living trust is that the assets within the trust are still considered a part of the settlor’s estate, and therefore, if the estate is valued above the estate tax exemption cutoff at the time the settlor passes, it may be liable for federal estate taxes.

Estate tax exemptions are set every year by the IRS. In 2019, the cutoffs were:

  • $11.4 million per individual
  • $22.8 million per married couple

That means that an individual can leave up to $11.4 million to their heirs without paying federal estate or gift taxes, and couples can pass $22.8 million without tax consequence.

Generally speaking, revocable living trusts maximize the amount of assets that count towards that estate tax cutoff number. However, considering that the Tax Policy Center estimated that there were only 1,890 taxable estates in 2018, this is primarily an issue for the ultra-rich. For the average settlor, a revocable trust will not come with serious taxation consequences.

Irrevocable trusts remove and isolate those assets from the trust creator’s taxable estate, thereby reducing the chances that they will be liable for estate taxes.

To Protect Assets From Creditors Or Lawsuits

Another downside of a revocable trust is that while the trust settlor maintains ownership of the assets, there is always the potential to lose them to creditors or lawsuits. If a trust creator has outstanding debt or is sued for damages, their assets are not protected by a revocable trust. Moving them to an irrevocable trust, however, means that the trust creator no longer owns those assets, and therefore cannot be forced to surrender them.

To Avoid Incurring Capital Gains Taxes

While in a revocable trust, assets will incur capital gains taxes. If you choose to set up an irrevocable living trust instead, there are ways to move assets around in such a way that they are not liable for this kind of taxation. (You may still owe gift taxes, however.)

To Protect Assets From Nursing Homes

If a trust creator ends up needing long-term care in nursing homes or assisted living, then the money and assets that were placed within a revocable trust can be used for those bills instead of being left to heirs as intended.

This issue is a double-edged sword, of course. If assets are placed within an irrevocable trust, they are protected for future heirs, but if the trust creator then ends up needing them for care, they may be out of luck.

To Claim Charitable Giving Tax Deductions

If assets are put into a revocable living trust while the trust’s settlor is still alive, then it is not considered charitable giving since the trust creator still maintains control of those assets. Therefore, they will not be eligible for charitable giving tax deductions. Once they have passed, the estate will receive a charitable giving tax deduction.

If the trust creator wishes to claim a charitable giving tax deduction while they are alive, they must create an irrevocable trust.

Revocable Vs Irrevocable Trusts — Which Type Of Trust Is Right For You?

In the end, choosing a revocable or irrevocable trust depends on what is most important to you to prioritize. Revocable trusts preserve control and flexibility in handling your assets, but leave those assets more vulnerable to being used before they reach their intended heirs. Irrevocable trusts trade control and flexibility for a range of tax benefits and ensure that the trust assets are protected.

If you’re not sure which option is best for your goals, then you can always speak with a fiduciary advisor who specializes in setting up living trusts. The team at CaMu Document Services is prepared to help! Our Valencia-based team takes an education-based approach to setting up trusts. Rather than advising our clients on what to do, we prefer to provide all the resources and knowledge that our clients need to make an informed, confident decision for their estate’s future.

If you’d like to learn more about setting up a living trust, then please contact us today.

Choose CaMu Document Services

Our Services

Why Choose Us?

  • Education-Based Approach: We believe in educating rather than ordering. Our goal is to empower you to feel confident in your choices for your financial future. We will never advise you to make a decision about your living trust that you do not understand; we strive to work with you to give you the tools, knowledge, and resources to make informed decisions for your estate.
  • Experienced Fiduciary Advisors: Our team of fiduciary financial advisors has 16 years of experience helping people like you learn how to manage and hand off estates to meet both immediate needs and long-term goals.
  • Personalized Guidance: We understand that in the modern age, there are many online services to help walk you through the process of setting up a trust. Our fiduciary advisors are proud to provide trust and fiduciary services at the same affordable price point as online advisors, with an added personal touch to ensure that you are making confident and informed decisions about your financial future.
  • Affordability: Ordinarily, the process of setting up a living trust through an estate planning attorney costs nearly $3,000. We offer full-package living trusts at an extremely competitive cost: just $499.
  • Comprehensive Full-Package Living Trusts: When you partner with CaMu Document Services, you will receive your living trust on 75 pages of high-quality paper, complete with notarization, an engraved binder, and as a bonus: one deed for one property.
    Satisfied Clients: Our clients have voted us as the most professional, affordable, and best-value living trust package in the Los Angeles area.

Are you ready to set up your living trust? Questions about our fiduciary services? The CaMu team is ready to help. We adhere to the strictest industry standards and regulations to ensure that you feel confident in our trust and fiduciary services, and can set up a trust that meets your goals.

Contact us for more information about what CaMu Document Services can do for you, or request an appointment in Valencia today.

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