Many people have heard that a living trust can help with probate and inheritance taxes, but they’re not sure if it’s the right option for their situation. A living trust is a trust that’s created during a person’s lifetime, explains nj.com’s recent article entitled “Will a living trust help with probate and inheritance taxes?”
One reason that people create a living trust is to help their loved ones avoid the publicity, time, expense, and hassle of probating their estate. Probate is the legal process whereby debts are paid, assets are distributed according to a last will, and property is retitled after a person’s death.
Another good reason to create a living trust is to protect your assets if you become incapacitated. An individual can serve as their own Trustee, but a successor Trustee would step in if the creator of the trust is no longer able to manage it.
The rules governing the creation and administration of a living trust can differ from state to state. Ask an experienced estate planning attorney and he or she will tell you that no matter where you’re residing, the element that most estate planning attorneys concentrate on is the capacity to create the trust. In most states, the capacity to create a revocable trust is the same capacity required to create a last will and testament. Some states have significantly lower capacity threshold for trust creation than the legal standards for other capacity requirements, like making a contract.
A living trust may help with probate and inheritance taxes, but note that the assets in a trust may be subject to income tax and may be includable in the grantor’s estate for purposes of determining whether estate taxes are owed. State laws differ on this. There are many different types of living trusts that have different tax consequences, so you should talk to an experienced estate planning attorney to see if a living trust is right for your specific situation.
Reference: nj.com (Jan. 11, 2021) “Will a living trust help with probate and inheritance taxes?”