The term “inheritance” describes the possessions that a person leaves to their cherished ones after they pass away. Cash, investments like stocks or bonds, and other things like jewelry, cars, works of art, antiques, and real estate can all be included in an inheritance.
Generally speaking, giving your children an inheritance is a good thing because it shows your love and cares for them. It also demonstrates that you did well enough in life to be able to leave something to your family.
You may be wondering what to do with your estate in San Diego CA. Should you create a living trust or plan an inheritance? Here are some things to consider when making this decision.
Difference Between Living Trusts & Inheritance Plans
Beyond your wish to give your children a living trust or an inheritance trust, there are certain crucial matters to take into account. Take a closer look at the difference between the two options.
A living trust is a formal arrangement made to safeguard a person’s assets, such as cash or real estate, and to specify how or to whom these assets would be distributed after their passing. To make it simple to distribute and transfer these assets to the selected beneficiaries, living trusts were created.
Revocable Living Trusts
Revocable living trusts are a common component of estate plans in San Diego CA. These trusts are subject to change or revocation at any time. A living trust’s creator determines if it can be changed or withdrawn. A “revocable living trust” is one that has a clause in it that states that it can be changed or canceled.
In contrast, an irrevocable trust cannot be changed or withdrawn once it is established. It is possible to specify in the trust that it cannot be changed or revoked. It is now an irreversible living trust as a result. Even irrevocable trusts, however, are permitted to be altered or terminated by the law under specific situations.
A living trust takes effect while you are still alive, which is the most important thing to keep in mind. Living trusts frequently assist you while you’re alive and distribute your assets following your passing. The main motivation behind this is to avoid the probate procedure, which can be costly and time-consuming. Despite the fact that living trusts are typically created for family members, anyone can be named as a beneficiary.
There are options to leave your children an inheritance, and each family will have a different viewpoint of what is ideal. Leaving the inheritance in a trust is a wise move. The trust might be set up with certain clauses, such as distributing the inheritance in installments over time. A trust can also eliminate the probate problem, enabling the inheritance to pass smoothly.
The ideal inheritance plan can be created with a fair amount of flexibility. Typically, it is advisable to let your children take over as trustees of their inherited trust after they reach a particular age like 25 or 30. Someone else is in control of their portion until that time.
Just to be clear, your child is always eligible to gain from the inherited trust, regardless of age. Just until they reach the age you specify, they are not in charge of it. By the time your child assumes management of the inherited trust, the trust will still be safe if ever your child gets divorced.
The trust will also be safe from creditor attacks, lawsuits, or bankruptcy. Until your child is old enough to handle the trust on their own, you can also provide instructions for the trustee to follow.
When you pass away, you can leave your children’s inheritance in trust rather than giving it to them openly. For instance, your estate planning paperwork may specify that your children would receive equal parts of the assets upon your death.
These shares are held in separate trusts, one for each child, rather than being given to the kids directly. The trustee may use funds from each child’s share to benefit them, regardless of their age. These issues are addressed by placing inheritance in trust, as follows:
- For a young child, the inheritance can be managed by a trustworthy trustee.
- A trustworthy trustee can be in charge of the inheritance for a disabled child. It may even be created so as not to compromise the government aid provided to the disadvantaged youngster.
- For an irresponsible child, in order to avoid the bequest from being squandered, a trustworthy trustee can be in charge of the inheritance.
- For addiction issues, a trustworthy trustee can be in charge of the inheritance to take care of the child while also preventing money for self-destructive practices.
- In case of bankruptcy, litigation, or divorce, the trust’s assets will be secure and protected from creditors.
How Your Recipients Benefit From Living Trusts
A living trust is advantageous for everyone with assets and property. With the aid of living trusts, you can make sure that your property is safeguarded and will be given to the loved ones of your choice after your passing.
In San Diego CA, living trusts are an effective estate planning vehicle that has many advantages, including avoiding probate. You can place a variety of assets in a trust, depending on the kind you have, including your bank deposits, real estate, and insurance policies.
It is no secret that living trusts are a great way to protect your family and loved ones from the stress and hassle of handling your affairs when you’re gone. When you set up a living trust, you can make sure that all of your property is distributed as you wish it to be.
In other words, when it comes time for your beneficiaries to receive their portion of your assets, they will receive them without being subject to probate court proceedings. This can save time and money for both the people who inherit from you and those who handle those assets after they’ve been passed down.
It’s also important to note that setting up a living trust can help protect your family from liability lawsuits.
You can get going with the aid of a living trust lawyer. They can advise you on the several trust kinds that might be the most suitable for your requirements and help you with the process of setting up and funding the trust.
How Inheritance Trust Keeps Your Assets In The Family
You can establish the inheritance trust where you are the grantor designating your child to serve as trustee and beneficiary in the event of your passing.
There are many solid reasons to set up trusts for your family. Leaving assets in trust for your children, however, has a number of extra advantages. These include the following:
- The assets will be protected from their spouse in the event of divorce.
- Properties will be protected from their creditors in the event of financial hardship.
- Unused assets will pass to your blood relatives (typically grandchildren) upon your child’s death rather than in-laws.
An inheritance trust ensures that your children have unrestricted access to both the income and principal of their trusts during their lifetimes, preventing you from giving them a “gift with conditions.”
However, if your children will pass away, it is more likely that you want your grandkids to receive the unused share of your child’s inheritance. The money is held in trust for the grandkids until they reach a certain age. In turn, the trustee may use as much of the assets as may be required for the grandchildren’s upkeep, support, and maintenance costs. The trust money goes to the surviving siblings of your children if one of them passes away without having children of their own.
The reality of the inheritance trust is that when assets are handed to your children in trust, it is far simpler for them to keep them apart from their spouse. All of your assets are immediately transferred from your trust to your children’s trust upon your death. When a child receives the inheritance “in hand” and must take proactive measures to keep those assets separate from their spouse or partner.
How Living Trusts Cut Your Inheritance Tax
If you are in San Diego CA, you don’t have to be concerned about paying inheritance taxes on the money you get from a deceased person.
California does not impose an inheritance tax. In other words, the property will pass tax-free to the beneficiaries and heirs.
Retirement funds are the lone exception to this general norm. When someone inherits a retirement account, they must pay income taxes when they take money out of the account.
Your estate may be able to avoid inheritance tax, but not federal estate taxes. However, most people don’t have to worry about it because the federal estate tax is only assessed on estates valued at more than $12.06 million (as of 2022).
Speak With A Weiner Law Living Trust Attorney Today
If you’re unsure about whether a living trust or an inheritance trust is right for your family, consider talking here with a Weiner Law attorney in San Diego CA about what options might work for your situation.
With the different options for trusts, it can be hard to know where to start. Lawyers from Weiner Law can help you navigate the world of estate planning and enlighten you on which kind of trust might be right for you.