Planning for your best financial future often includes thinking beyond your lifetime and looking toward your financial legacy. Estate planning is the process of designing a plan for your assets after your death or incapacitation. While it may not be pleasant to consider these circumstances, formulating an estate plan can give you peace of mind, no matter what the future holds.
Many people mistakenly think that estate planning is only for individuals with significant wealth. In reality, an estate plan is an excellent way to make sure your assets, large and small, are distributed according to your wishes.
Most estate plans begin with creating a will, but this task alone may not allow you to get specific enough about your estate or assets. If you want to maintain ownership of your assets while planning for the future, you may want to consider setting up a trust, which is a fiduciary arrangement that aids in asset distribution. The most common option in estate planning is a revocable living trust.
What is a revocable living trust?
There are many types of trusts, but living trusts have the unique advantage of transferring ownership of your assets into your trust during your lifetime, while still granting you access to and autonomy over those assets.
When you set up an irrevocable living trust, your actions are limited after it has been established. If you want to modify or change an irrevocable trust, you’ll need approval from everyone named in the trust, including beneficiaries and trustees. In contrast, a revocable living trust allows you to change beneficiaries or redistribute assets during your lifetime as you see fit.
There are tax differences between these two types of trusts as well. In an irrevocable trust, the taxes are applied to the trust itself. In a revocable trust, you are still responsible for income from the assets in the trust since you maintain ownership of the trust itself.
Benefits of a revocable living trust
A revocable living trust has many benefits, making it one of the most popular options for estate planning of any size.
It doesn’t need to go through a probate court.
Typically, wills must be authenticated by a probate court, which could mean additional costs or lengthy waiting periods. Revocable living trusts allow you to avoid probate, distributing your assets to your beneficiaries in a timely manner.
It offers more flexibility than a will.
Wills only take effect upon death. If you want more control over how and when your assets are distributed, a trust can provide that freedom. Revocable living trusts can be set up to take effect after death, before death (for example, in a certain number of years), or in case of incapacitation.
You can choose your trustee.
Should you become incapacitated during your lifetime and unable to manage your own affairs, the trust will already be in place with a trustee managing your assets. You most likely won’t need to be declared incompetent and someone you have faith in will make decisions for you. This can offer peace of mind.
It simplifies the process of distributing assets according to your wishes.
A trust provides much more control over asset distribution than a will. If you would like your beneficiaries to receive their funds or assets over time, the remainder can stay in the trust, managed by your trustee until it’s time to pay out.
It can help you and your beneficiaries minimize estate taxes.
If you have a large estate, your estate planning attorney can help you establish a credit shelter trust. This allows you to transfer your wealth according to your wishes while protecting your beneficiaries from certain estate taxes.
Do I need to set up a trust?
You may not need a revocable living trust. Like most planning decisions, whether you need to set up a trust depends on your own circumstances. If your estate is likely to go to multiple beneficiaries, has a large number of assets or significant value, and/or your wishes may not be well received by family members, a trust is worth consideration. An estate planning attorney can help you decide if a trust is the right next step.
A trusted partner for your financial future
At Marietta Wealth, we’re here to help you find financial freedom today and leave a legacy for tomorrow. We offer financial planning for every season of life, including retirement planning and investment management.
Our advisors would be happy to help you plan for your desired future. We can also refer you to trusted estate planning attorneys if setting up a revocable living trust is the right choice for you. Get in touch with us today to learn how we can help.
Marietta Wealth is a registered investment adviser. Registration of an investment adviser does not imply any level of skill or training. For additional information about Marietta Wealth’s financial planning and advisory services, please see the Marietta Wealth Disclosure Brochure or ADV Part 2A for full details, which is available upon request or by visiting our website.
This article is not intended to be used, and should not be used, as the sole basis for legal advice. The reader should seek and rely upon the guidance and advice of legal counsel before making decisions regarding any estate planning tools or documents.