Living trusts are increasingly common tools used in estate and inheritance planning, for the purpose of sending maximum assets to heirs, tax free.
A living trust is basically a transfer of ownership of assets, from you to the trust. This trust is called a "living" trust because it's established while you are still alive.
Ownership of Assets
Although the trust owns the assets and property within it, you retain ownership of the trust, meaning you retain control over those assets and property. Living trusts are generally created for the benefit of the person who forms the trust, and that person retains all control.
Avoidance of Estate Taxes
Living trusts are most commonly used to avoid estate and inheritance taxes upon the founder's death. Because property is owned by the trust and not the deceased owner of the trust, all assets and property in a living trust are not subject to probate.
Contents of a Living Trust
A living trust can contain virtually any asset of value, from real estate and cash to antiques and intellectual property. As long as the asset is placed in the living trust before the owner's death, the assets are considered part of the trust and are not subject to probate.
Disadvantages of a Living Trust
Living trusts are not flawless solutions to avoiding inheritance taxes. Accounts can take a great deal of time and cash to establish, so much so that they may negate the benefits of avoiding probate. It can also be difficult to move financed assets, such as real estate with a mortgage attached, into a living trust.