For those of you who already have living trusts, congratulations—you are certainly on the right track when it comes to estate planning. But how do you know when to update your living trust?
Even if you don’t have one yet, this article is worth a read ...
As a real estate investor, you may have many properties that you will pass on to your heirs. The living trust can help you ensure a seamless transition upon your passing. A revocable living trust is an estate planning tool. It may be helpful to think of the living trust as a large lockbox that holds your assets. The trust’s “job” is to hold title for the properties.
When a living trust is created, a trustee will be named to control the assets for you. You can think of your trustee as the person who has the key to your “lockbox.” Your role is simply to be the beneficiary of your trust. You may direct your trustee to buy, sell, or transfer assets into or out of the trust. Estate planning attorneys use living trusts as a way to avoid probate court.
The will may be the most widely recognized estate planning tool, but a living trust is far superior to a will alone. Wills would have to go through probate court, which means your grieving loved ones would be navigating a maze of red tape before receiving anything from the estate.
The living trust allows for the control of the assets to immediately pass to the designated heir, as opposed to getting caught up in probate court by passing through an ordinary will. With this method, you can breathe easy knowing that mortgage payments are made, rents are collected, insurance premiums are paid, etc.
The living trust ensures that your property is not lost or diminished in value, which are both highly likely occurrences if the properties are caught in probate court. It has the added benefit of keeping the value of the home out of the taxable portion of your estate.
Living trusts are easier to modify than wills, but harder to challenge legally. Trusts are also private, meaning using a living trust would remove your name from the public record. You would no longer own the property but retain control as the beneficiary of the trust.
For real estate investors who may be buying and selling assets frequently, it is important to know that you would normally update your estate plan each time you make a significant purchase or sale. This could present a challenge for an active investor with many properties, but that problem can be easily addressed by simply using a pour-over will. The pour-over will passes all property you own into your living trust upon your death.
For the real estate investor, a pour-will pairs well with the living trust to ensure a smooth, private transition of your assets. Using these tools together is a smart move.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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