When you need to pass down your valuable assets to selected beneficiaries, you can choose between living trusts and life estate deeds. Both options have their own set of perks and cons. The good news is that both options allow you to avoid probate.
The focus of this post is to help you understand the basic differences between a living trust and a life estate. It will help you determine which option is more suitable for you or your loved one. Now, let’s look at the unique differences between the two:
A living trust refers to a legal arrangement set in motion by the grantor to protect assets and ensure proper distribution of assets after the grantor’s departure. At its core, a living trust is a tool of estate planning that makes it possible for beneficiaries and family members to avoid the complex, public, complex, and lengthy probate process.
Technically, it is a legal document that outlines the terms and conditions of the trust and respective assets assigned by the grantor. The grantor designates a trustee who gets to control the assigned assets in the best interests of the beneficiaries.
A life estate is a kind of deed that allows you to transfer property to your loved ones in case of your demise. Your properties are automatically transferred to your loved ones in an estate deed.
You can pair your will with a life estate deed to cover most options. A life tenant drafts an estate deed. In an estate deed, the real estate property is yours while you’re alive. With a life estate in place, no one can evict beneficiaries from the house after your death.
Life estate secures property ownership and provides property tax exemptions for years to come without requiring the property owner to leave the estate.
Before you create a life estate document for your property, it is crucial to be aware of the potential downsides and pitfalls of a life estate vs. a living trust:
The truth is that a life estate deed and a living trust can substitute for each other. However, there are some differences that make each instrument unique. In retrospect, a life estate involves property ownership that lasts throughout a person’s life.
On the other hand, an estate deed transfers property ownership while the owner is still alive. There is more than one complexity that can stem from a life estate deed. For instance, the property owner may not be able to change or sell a property.
Similarly, the owner of an estate may not be able to use the property to get some money. Also, if the owner passes away, the true property owner gets it back, and the estate deed does not automatically pass the property to ex spouse or children.
Now, a living trust is an individualized legal document where a trustee becomes responsible for managing the assets and work in the best interests of the beneficiaries. The usual course is to sell the living trust property requiring verification and signed authorization. In the event of a beneficiary or trustee’s death, a successor is named within the trust.
It is vital to remember that a living trust and a life estate deed are integral documents in estate planning. Fundamentally, an estate divides the ownership between the receiver and the giver. A living trust makes it possible to transfer a portion of an asset.
There are many reasons to leverage an estate deed and a living trust to transfer assets and avoid the probate process. All in all, an estate deed requires more considerations before signing. Ideally, you should have an estate attorney advertising to draft the legal document and learn how to utilize this legal instrument best.
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The individual with an estate deed gets the legal right to use and possess the property throughout his lifetime. After the life-tenant’s death, the property is transferred to the individual who has the remaining interest.
Yes, a trustee can act as a trust beneficiary. Today, a revocable trust has become a standard trust.
If your home is part of the trust, it won’t be easy to sell it. Instead, the trust allows heirs to get the funds after a settlement. In comparison, an estate deed is an ideal option. Owners can sell or manage the property during their lifetime.
The main benefit of a living trust is that it helps you avoid the traditional court proceedings of probate once you depart.
Revocable trusts and irrevocable trusts are the most practical and utilized trusts. Similarly, you can also use irrevocable trust, life insurance trust, and credit shelter trust.