Why Living Trusts are for Normal Middle-Class Couples

 Posted on October 11, 2022 in Estate Planning

Trusts are not simply for the ultra-wealthy. Trusts are a great tool for those with modest assets that wish to protect those assets and save unnecessary expenses and arguments between loved ones after their death. 

What is a Living Trust and What Does it Do?

A Trust is a fiduciary arrangement that allows a third party (the trustee) to hold title to assets (property) on behalf of certain beneficiaries. The creator of the Trust selects the beneficiaries of the Trust property. As holder of the title, the trustee is subject to the condition of keeping or using the property for the benefit of the beneficiary. A "Living" Trust (sometimes called an "inter vivos" Trust) is a Trust you create while you are alive.

Inter Vivos Trust Attorney in Yorkville and Kendall County

A Trust has a similar function to a will but is often a much better choice for a person looking to control what happens to their property after they pass. The creator of a Trust selects who will be the beneficiaries. Then, those who were selected will receive the Trust property when that person dies. When two people are married, they have the option of setting up a joint Trust.

As part of their estate planning, many couples create a “Revocable Living Trust.” Trusts may be modified or revoked at any time. Typically, a creator of a Trust would name themselves as the trustee of the Trust. As a result, the creator of the Trust would retain control of the Trust and its property for life. The Trust creator would also select a second person that will take over and manage the Trust after their death. This person is called the “successor trustee.” If the Trust is a Joint Trust, the surviving spouse would assume the role as trustee and the successor trustee would only take over upon the death of both spouses. On the other hand, some people create an “Irrevocable Trust.” This type of Trust cannot be revoked or modified once they are signed. Irrevocable trusts can be useful tools for specific goals, like reducing taxes, but they require giving up ownership and control of trust property.

Should My Spouse and I Have a Separate or a Joint Living Trust?

Whether a couple should have separate or joint Trusts is different for every couple and depends on the goals of each person. The most common scenario in estate planning is that both spouses wish to have the surviving spouse inherit all the Trust assets when they die. If this is the case, the best option for this couple would be to create a Joint Trust because a Joint Trust can be less complicated to set up and maintain than separate Trusts would be. This means less headaches for the surviving spouse. However, there are certain situations where separate Trusts would be the better choice for a couple. 

Benefits of Having Separate Trusts

There are really three main benefits for a couple that decides to have separate Trusts. First, this is often the best option when one spouse wants their Trust assets to go to others besides the surviving spouse. The most common scenario for this is when one spouse has children from a relationship prior to the marriage they are currently in, and the spouse wants to ensure that those children are given those assets when they die. Additionally, a separate Trust can protect the assets of the deceased spouse from creditors after they die. If a married couple have separate Trusts and one spouse dies, the surviving spouse can access the Trust assets and funds, but creditors of the deceased spouse have a much harder time doing so. There are also certain taxes that can be reduced or eliminated completely by having a separate Trust.

Benefits of Having a Joint Trust

A Joint Trust is the most common and often better choice for married couples. One reason is because when one spouse dies, the surviving spouse has complete control over the Trust assets. This is as opposed to a surviving spouse when there are separate Trusts, the surviving spouse has limited control and can only withdraw from the deceased spouse’s trust for certain expenses. A Joint Trust is also generally better for tax purposes for two reasons. First, a Joint Trust does not require the filing of a Trust tax return until both spouses have died, where a separate Trust requires the filing of a Trust tax return every year. Second, a Joint Trust is not subject to a higher tax bracket until both spouses have died. Additionally, a Joint Trust allows a surviving spouse to have a much easier time selling real estate that is held in a Joint Trust because of the complete control they have over the Trust. A surviving spouse to a separate Trust would have a much more challenging time accessing the Trust property to sell it.  

Experienced, Reputable Estate Planning Attorneys in Kendall County

Estate planning is strongly recommended for everyone, including middle-class couples. Without a proper plan in place, the process of settling a person’s estate after they die can be emotional, costly, and overwhelming for the loved ones that are tasked with doing so. Planning of time can help protect beneficiaries of your property, reduce the amount of taxes taken by the IRS when transferring assets, and helps to eliminate family disputes that can arise during the distribution of an estate. Hiring effective and experienced trust counsel is critical. Contact an experienced estates and trusts attorney to assist you with your estate planning needs. Invest in your family by providing a smooth and effective plan to transfer your assets to your loved ones. At Peace of Mind Asset Protection, LLC, we have the proper knowledge and experience to assist with the best estate planning option for you and your spouse. Contact us today at 630-882-2467.