What Is a Living Trust? And Why You May or May Not Need One
There is never a pleasant or convenient time to think about end-of-life scenarios. These types of decisions create stress and strain for families, but by creating a road map ahead of time, you can reduce painful legal proceedings that arise during a time better spent celebrating the life of a loved one.
One option for planning ahead is to create a Living Trust.
What Is a Living Trust in Michigan?
A Living Trust is a legal document that designates a person—the Trustee—to accept responsibility for managing the assets of a Settlor on behalf of the Beneficiary. What sets a Living Trust apart from a Will is the early designation that clearly defines the process of moving assets into the possession of the Trustee and, eventually, the Beneficiary, without the need for entering costly and complex Probate Court.
The decision to create a Living Trust is unique to every person or family, and there may be additional benefits to creating a Living Trust based on where you live. The legal structure of Probate Court often dictates how costly that process might be or how long it might take. Luckily, Michigan has a relatively streamlined process as a part of the Uniform Probate Code. For estates valued at less than $15,000 (adjusted for inflation), there is an even more simplified process.
However, one of the major factors in creating a Living Trust is the need to pass on property or funds to a minor. In that case, it is more common to leave the property in the hands of a Trustee until the minor comes of age. This leaves the burden of effective, responsible management with a capable, trusted adult until the minor is to take ownership.
Why Do You Need a Living Trust?
You need a Living Trust if you have assets that may need specific management before or after your passing.
The Trustee manages the Trust in the best interest of the Beneficiary. This is a fiduciary duty, with its management often triggered upon the death of the Settlor. The Settlor, also called a Grantor, outlines their wishes in a Trust Agreement. This agreement often includes details, requirements or conditions that might affect the amount or timing of the eventual transfer of assets from the Trustee to the Beneficiary.
Additionally, you may need a Living Trust in order to parcel out certain assets from your Estate or to ensure certain assets or property are appropriately passed on to a Beneficiary, especially a Beneficiary who may be a minor.
The Two Types of Living Trusts
What Is a Revocable Trust?
A Revocable Trust allows the Settlor to retain control of the assets held within the Trust. When the Settlor designates himself or herself as the Trustee, he or she retains the assets as a part of their entire Estate.
This control, however, does have a drawback. A Revocable Trust may leave the Settlor liable for estate taxes if the Estate is valued higher than the applicable estate tax exemptions. Still, many Settlors accept the added tax burden to maintain ongoing control over the assets that allow them to add or subtract Beneficiaries. They can even undo the Trust entirely.
What is an Irrevocable Trust?
As you might have guessed, the Irrevocable Trust involves a Designated Trustee empowered to manage the Trust on behalf of the Settlor. In this structure, the Settlor relinquishes control of the assets and may not be able to control those assets at all, even while they are still alive.
In effect, those assets are in the hands of the Trustee and there is little action a Settler can take to either reclaim the assets or undo the terms of the Trust. But the benefit is that the Settlor’s Estate may escape estate tax liability because the Settlor no longer has control of those assets so they will not be counted as part of the Settlor’s Estate.
Why You May Not Need a Living Trust
Michigan’s streamlined probate processes make the need for a Living Trust more beneficial for larger Estates. Living Trusts tend to be more costly to prepare than a traditional Will. More valuable assets often require more intensive management or decision-making as compared to single accounts or an individual property. However, it is important to consider a Living Trust if you have any dependents, especially if those dependents are underage.
As a general rule of thumb, a wealthier Estate will have more incentive to create a Living Trust, though speaking with an expert may help make that determination for you and your family.
Finally, a Living Trust isn’t the only legal document worth preparing. In addition to the Trust, it is still a very good idea to create a Will that covers any assets that may not be tied to the assets listed in the Trust.
Legally, any assets outside of the Trust won’t be controlled by the Trust, so be sure to itemize what is and isn’t included. These types of decisions are often made easier with the help of an experienced legal team.
Hire a Living Trust Lawyer
If you are ready to begin the process of creating a Trust, contact a Living Trust lawyer at Dingeman & Dancer, PLC, to answer your questions and learn more about creating a Living Trust.