If you’ve ever tackled a home improvement project, you know that you need the right tools to successfully complete the job. Without the right tools, you may never be able to finish the job or you may do it badly.

You also need the right tools when it comes to planning your estate. The good news is that you may be able to solve many financial problems and offer continued financial security for your family by using a flexible tool called a living trust.

What Is a Living Trust?

A living trust is a legal arrangement created during your lifetime involving three parties — a grantor, a trustee, and a beneficiary. The grantor creates the trust and the trustee controls the trust’s property for the benefit of one or more beneficiaries. Living trusts come in many different forms and can be set up to benefit you, you and your spouse, or other individuals you name.

Revocable Living Trust

You can put your investment portfolio, and almost any other asset, into a revocable living trust. You set the terms of the trust, and you can modify them (or terminate the trust) in the future if you want to. The assets you transfer to the trust during your lifetime generally avoid probate (the process of proving the validity of a will). This may benefit your heirs because probate is often costly and time consuming.

Standby Trust

Who would manage your assets if you became incapacitated? With a standby trust, you can rest assured that someone you trust will follow your instructions and handle your financial affairs if you can’t. This type of trust takes effect only when a triggering event, which you specify, takes place.

For example, if you suffer a prolonged illness, your trustee will follow your instructions and take over management of your assets. After your recovery, you can resume the management duties and your trustee will return to standby mode.

Gifts to Minors Trust

Many people don’t feel comfortable giving large sums to children or grandchildren who may be too young to handle their own finances. One possible solution is to set up a “gifts to minors” trust.

Your gifts to this type of trust can qualify for the federal gift-tax annual exclusion, even though beneficiaries may be unable to use or enjoy the gifts until some time in the future. With a gifts to minors trust, you direct your trustee to manage the trust income and assets for the child’s benefit — until the child reaches age 21. Then, the child must be given access to the trust assets.

Life Insurance Trust

Did you know that your estate could be subject to taxes on the proceeds of your life insurance policies? One possible way out of this problem is to set up a life insurance trust. A life insurance trust can hold your existing policies or buy new ones for you if you wish.

When you die, your trustee manages and distributes the proceeds as you specified in your trust agreement. If the trust is properly structured, the benefits will not be included in your estate for federal estate-tax purposes (unless a policy is transferred within three years of death).

Including the right tools in your estate plan will help ensure that your beneficiaries are protected and your wishes are carried out. For more information on how you might benefit from a living trust, please contact us.