Trusts are often used in estate planning to determine where the title of a property goes. Sometimes there are living trusts that are created when the party creating the trust is still alive. In this article, we will discuss how living trusts are creating and what they do for your property.
We cover common questions about living trusts, including:
- What is a living trust?
- Do I need a living trust?
- Do I need to have a will in addition to a living trust in Iowa?
- Will a living trust reduce my tax liability in Iowa?
- How is a living trust created in Iowa?
What is a living trust?
A trust is where one person, called the trustee, holds the title to property on behalf of someone else, known as the beneficiary. This can be the same person, allowing for a person to maintain control of the property held in the trust.
Living trusts, specifically, are trusts created while the party creating it is still alive, rather than one that is created upon the person’s death under the terms of something like a well. The beneficiaries named in the living trust will receive the trust property upon your death.
Do I need a living trust?
In Iowa, the main advantage of making a living trust is to avoid the potential family conflicts and delays of probate court proceedings following your death. Because Iowa doesn’t follow the Uniform Probate Code, a living trust can be a much easier solution than going through Iowa’s complex probate process.
Iowa does have a simplified process, but it is limited to situations where there are under $25,000 and the decedent doesn’t have any real property. For many people in Iowa, the assets left upon their deaths will be above the amounts for a simplified probate. Should this be the case for you, a living trust may be the right option for you.
Do I need to have a will in addition to a living trust in Iowa?
It is always advisable to have a will. It will act as a backup plan for any property that doesn’t make it into the trust or is otherwise left over. This can happen a few different ways. Most of the time, it’ll happen when you create a trust then acquire or inherit property after and have yet to add it to the trust. You can use a will to name someone to inherit this property that might be left over.
The consequence of not having a will as a backup is that this property would be distributed through intestate succession, as outlined by Iowa law.
Will a living trust reduce my tax liability in Iowa?
The answer is likely no. Federal estate tax applies only to estates worth $12 million or more and Iowa does not have an estate tax.
If you have an estate over $12 million, it is worth considering various forms of trusts which can help reduce or avoid estate taxes.
How is a living trust created in Iowa?
To create a living trust in Iowa, you need to do the following:
- Decide whether you want an individual or shared trust (share it with another party like your spouse).
- Decide what property you want included in the living trust.
- Choose a successor trustee (the person to manage the trust upon your passing).
- Decide who the trust’s beneficiary is (the person benefitting/receiving the trust property).
- Have the living trust document created.
- Sign and notarize the document.
- Transfer the ownership of the property to the trust (for example, changing the title on a vehicle or having any real property like a trust transferred to the trust).
Once the living trust is created and the property is transferred, everything is complete. The beneficiary will receive the benefits of the trust’s property and the trustee will manage the trust.
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