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Military Finances 101: What Is a Living Trust? Thumbnail

Military Finances 101: What Is a Living Trust?

Estate Planning

A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives. Learn more about what a living trust is and some of the potential benefits of a living trust to help you determine whether a living trust is right for your situation.

What Is a Living Trust?

A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically, you) has full power to manage these assets. A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets may be automatically passed on upon your death.

If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.

Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with an estate planning professional.

Why Create a Living Trust?

The living trust offers a number of potential benefits:

  • Avoid Probate: Assets are designed to transfer outside the probate process, providing a seamless, private transfer of assets. This can be especially important for Active or Retired Senior Military Officers and NCOs who own real estate scattered across the country. This is because real estate goes through probate in the state where it is located not your state of residence.
  • Manage Your Affairs: A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided that you have adequately funded it and named a trustworthy trustee or alternative trustee.
  • Ease and Simplicity: It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.

The Drawbacks of a Living Trust

Living trusts are not an estate planning catch-all. They won’t accomplish some potentially important objectives, including:

  • A living trust is not designed to protect assets from creditors. It is also considered a “countable resource” when determining your Medicaid eligibility.
  • There is a cost associated with setting up a revocable living trust.
  • Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance, since you are no longer the owner.
  • A living trust is not a mechanism to save on taxes, now or at your death.

Revocable vs. Irrevocable Trusts

Sometimes, you might hear a living trust referred to as a revocable trust, meaning that you can make changes to it after it’s created. These changes could include changing beneficiaries or trustees, changing the assets that are included in the trust or modifying any stipulations. 

This is in comparison to an irrevocable trust, which is a trust that can’t be changed after it’s created. Generally, irrevocable trusts remove assets from your estate, which may limit estate tax upon your death. Irrevocable trusts require a qualified attorney to set them up. 

Is a Living Trust Right for Me?

Every estate planning situation is different, so consider working with a financial advisor or attorney who understands your unique situation. But these questions may offer further insight into whether a living trust is right for you:

  • Will you be leaving significant assets to your heirs? Trusts cost more to establish than wills, but they may pay for themselves if you are able to avoid the expenses associated with probate. 
  • Is privacy a concern for you? With a living trust, all assets are kept confidential and aren’t part of public records (unlike a will). 
  • Is there a minimum net worth necessary for you to create a living trust in your state? An estate planner will be able to help you with this concern. 
  • Will you and your spouse have different beneficiaries, such as children or grandchildren? If so, a living trust may help determine where each spouse’s assets will go without needing the probate process. 

Living trusts are just one piece of the larger estate planning puzzle. Ensure your assets are protected and organized upon your death by working with a qualified estate planning professional.

Military Finances are Different

Estate planning is not a concern unique to Active and Retired Military Members. But you could have some issues such as multi-state real estate ownership that are less common in the civilian world. It doesn't stop there. You have unique tax and financial planning issues that a Financial Advisor or Planner may not know about if he or she doesn't work with Active and Retired Senior Military Officers and NCOs routinely. That's why we think you should work with a Financial Planner that works with military members each and every day. If you'd like to chat about how we can help you, give us a call or schedule a free initial consultation by using the button below.

If you found this article useful, you might like the following blog posts:

Retired Military Finances 201: Beware These 8 Estate Strategy Myths


Retired Military Finances 301: A Guide to Dividing Your Estate Unequally


What Military Officers Need to Know About TSP and Estate Planning


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