Estate planning means taking steps to ensure that your family is provided for after you're gone. There are several tools you can use to plan your estate, including a will, life insurance and a living trust. If you have substantial assets, a living trust allows you to manage them during your lifetime and beyond. Any assets that aren't covered by the trust can be transferred to an estate account after you die.
A living trust is a legal document that can be used to supplement a will. You create the trust and transfer assets into it, and a trustee is responsible for managing them according to your wishes. Should you die or become permanently incapacitated, the trustee will continue to manage the trust for your beneficiaries. A living trust can also be used to name a guardian for minor children, make charitable donations or arrange for long-term care for a special-needs dependent. Living trusts can be revocable, which means you can change them at any time, or irrevocable if you want to make the transfer of property permanent.
An estate account is a special type of bank or brokerage account that's set up by the executor of an estate after someone dies. An executor is the person who manages your assets during probate. Probate refers to the court-supervised distribution of assets that aren't held in a trust. The executor is responsible for making an inventory of all of your assets, paying any debts owed by the estate and distributing your assets to your heirs. To make the process easier, the executor will liquidate as much of your estate as possible and consolidate your assets into an estate account.
A trust account is set up specifically to hold trust assets after the trust has been established, such as cash and other securities, and is controlled by the trustee. Generally, a trust can be set up using your Social Security number if you're the trustee, or you can apply for an Employer Identification Number in the trust's name. The trustee will need to apply for a new EIN when you die because your living trust automatically becomes irrevocable, so no new changes are allowed.
Before you set up a living trust, you need to make sure it's right for your financial situation. If your estate is relatively small or you plan to leave everything to your spouse, the time and expense involved in setting up the trust may not be worth it. You should also keep in mind that certain assets can't be put in a trust, including qualified retirement accounts and health savings plans. If you don't set up a trust, it's a good idea to write a will outlining how you want your assets to be distributed. If you die without a will, the state will divide your estate according to inheritance laws instead of your wishes.
Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.