When considering their estate plan and the use of trusts, most people envision the use of testamentary trusts which take effect upon the death of the settlor. However, living trusts (inter vivos trusts) allow for many benefits beyond those provided by testamentary trusts, not the least of which being that the assets transferred to a living trust avoid estate taxes which may apply to testamentary trusts.
If you are entering into a second marriage, with currently dependent children from a previous marriage, inter vivos trusts may allow for assets to be set aside for those children while also allowing your current spouse to benefit from your estate’s assets upon your death during their lifetime. Trusts also have the added benefit of allowing for the appointment of another individual with financial expertise to act as trustee should there be any concerns over the ability of a surviving spouse to manage financial assets.
Should an individual have a disabled spouse or child, a trust may assist with providing a steady stream of income to help ensure that the beneficiary enjoys a consistent standard of living.
Another benefit of the use of trusts, is to restrict beneficiaries to the income produced by the trust during their lifetime, and upon their death, have the capital of the trust pass to another individual or entity such as a charity.
While the use of living trusts deprives the settlor of the ownership of assets during their lifetime, for some, the certainty of knowing that their assets are being distributed as intended as well as potential probate tax savings offers great comfort.
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