Sitting down to iron out estate planning issues isn’t what anyone would consider a fun way to spend an evening, but taking the time to do it now while you are healthy, especially during an unpredictable pandemic, can bring peace of mind to your loved ones in the event the worst happens.
Doing so can save your family the hardship of being immediately buried in legal paperwork to sort out your possessions, estate, and finances.
One thing I stress to our clients: a key part of this planning is a living trust or land trust, which can ensure those you love are bequeathed the assets or properties you wish them to receive without having to navigate the expensive process of probate.
Related: Estate Planning for Investors: Insight From a Real Estate Attorney
What Is a Living Trust?
A living trust is one that you, the trust settlor or grantor, create during your lifetime as either a revocable or irrevocable trust. The designated trustee, someone appointed by you as the grantor, manages the trust and is legally in possession of any assets in the trust. As the trustee, this person is required to manage the trust in a way that suits the best interest of the trust’s beneficiary or beneficiaries.
Upon your, the grantor’s, death, your beneficiaries immediately receive any assets in the trust without having to deal with the court system. This is in direct contrast to a will, which goes through probate court before any distribution can occur. (Depending on the clarity of your will and the amount of assets, this can take years!)
Related: Lawsuits Are a Big Business—Here’s How to Shut Them Down
Revocable vs. Irrevocable Trusts
The key difference between a revocable and irrevocable trust is the designation of trustee.
A revocable trust has the grantor as the trustee as well, giving them control of the assets contained in the trust. In doing so, the assets within the trust remain within the grantor’s estate and any beneficiaries may be liable for a high estate tax bill at the time of death if the value of the estate tax exceeds the estate tax exemption. A benefit of the revocable trust, though, is that the grantor is able to amend trust rules at any time, including changing beneficiaries or even undoing the trust entirely.
Related: The 5-Point Survival Guide for Executors and Trustees of Estates
An irrevocable trust, on the other hand, designates someone other than the grantor as the trustee. By doing this, the grantor hands over control of their trust and their assets to someone else. This can reduce taxable assets when it comes time to calculate estate taxes, but it also makes it extremely difficult to change beneficiaries without their permission.
What Is a Land Trust?
A land trust is similar to a revocable living trust, but the only assets able to be held in a land trust are real estate and related assets like notes, mortgages, air rights, and mineral rights. A land trust sees the property owner as beneficiary, and they are thus able to manage the property directly and retain all rights for the property. (A trust agreement sets these specific terms.)
This type of agreement allows the property owner or beneficiary to freely develop, rent, or sell whatever is held within the land trust. Like a revocable living trust, it can also be changed by the grantor at any time.
Related: What a Litigation Nightmare Looks Like (and How to Stay Out of One)
Benefits of a Land Trust
So why start a land trust?
There are plenty of benefits of a land trust, but the most important is that it anonymizes your property ownership. Any land or property held in a land trust has only the name of the trust listed in public records, which can hide your net worth from prying eyes and decrease the likelihood of lawsuits.
Similar to a living will, a land trust also keeps your beneficiaries out of probate court in the event of your death. In addition, property held within a land trust, whether owned personally or by a Series LLC, protects your property investments from lawsuits.
Questions? Comments?
Share below in the comment section.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
