There are numerous benefits of creating a trust as your primary estate planning tool. Different kinds of trusts can help you avoid probate, reduce estate taxes, or set up long-term property management for you and your family, including family members who are minors or have special needs.
A revocable living trust (“RLT”) is a separate entity created for holding title to property for the benefit of a beneficiary. A revocable living trust is just that – revocable and changeable by the person who created it. A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death.
With a revocable living trust, you, the property owner are the Settlor, who creates and can amend the trust, the original Trustee, who manages and distributes the property held in trust, and the beneficiary until death, at which time, a Successor Trustee transfers the property to the successor beneficiaries. Control over the property remains with the owner(s) during life and the transfer of property after death occurs without probate.
One of the primary advantages of creating a living trust is that property left through the trust does not have to go through probate. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it. The average probate takes 7-12 months before distributions are made. Property you transfer into a living trust before your death does not go through probate. If you have property in more than one state, a trust can eliminate the need for probate proceedings in multiple jurisdictions. The successor trustee — the person you appoint to handle the trust after your death — simply transfers ownership to the beneficiaries you named in the trust according to how you stated in the trust agreement. In many cases, the whole process takes only a few weeks. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
A simple probate-avoidance living trust has no effect on taxes. More complicated living trusts, however, can greatly reduce the federal and/or state estate tax bills for people who own assets above the estate tax exemption. If your estate, including life insurance, is sizable and over the estate tax exemption amount ($1,000,000 for the Maryland estate tax and $5,250,000 for the 2013 federal estate tax), a credit shelter trust can save your beneficiaries tens of thousands of dollars in estate taxes. This specific tax-saving trust is designed primarily for married couples. It is also commonly called an “AB trust,” an “exemption trust,” a “marital life estate trust,” or a “marital bypass trust.” Each spouse leaves property, in trust, to the other for life, and then to the children or other beneficiaries.
Another benefit of a trust is that it is a private document. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate — inventories of the deceased person’s assets and debts, for example. The terms of a living trust, however, need not be made public.
Some other benefits of trusts are that a trust can allow for great specificity with regard to distributions for beneficiaries, asset protection, retirement plan distribution planning to limit income taxes, provisions for special needs children, blended family planning, and provisions to prevent guardianship.