What is a Living Trust?

Day 284 of my Financial Freedom Countdown

My wife and I put our bank accounts in the name of our trust this week. The thing is we executed our living trust two years ago. Our homes were immediately put in the trust right after we executed it, but for some reason we didn't get around to make the change to the bank accounts until now. Since we were off this week I decided let's go ahead and get this done already, but you may have asked yourself, what is a living trust?

Most people have heard a lot about living trusts and the benefits of having one. Basically, a living trust is created during your lifetime where you retain control over the assets that are placed in the trust, but no longer own them.

I think it is beneficial for everyone to have a living trust. Especially, when you are in debt. Earlier this year one of our creditors garnished our bank account because we were delinquent on our credit card payments. Since we also banked with the creditor they were able to do that. However, if we had the account in a trust at the time, they wouldn't have been able to do that since the trust would have been considered a third party entity. So a trust provides asset protection, but be careful that many people and organizations that recommend that you have a living trust may be more interested in getting paid than in providing estate planning for you.

Even once the living trust is executed, you still need a will to go along with it to deal with matters beyond the scope of the trust. Any professional worth their salt who prepares the trust for you, should also provide the will to go along with it.

Some advantages and disadvantages of trusts are:

• It does not help you with federal estate tax.
• Helps you get privacy while you are alive.
• Helps you avoid probate tax on a state level. 

We used an attorney when preparing our entire asset protection plan, which included: a living trust, will, power of attorneys, and medical power of attorneys. You can find programs to prepare these documents yourself, but whatever your financial situation, I recommend you consult an advisor to review your needs.

For more information about estate planning, probate, wills and living trusts visit www.CityLegalGuide.com

photo via (JWellerLaw)

[This post is written and copyrighted by Financial Elite (http://financialelite.blogspot.com/ ).]

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