Understanding LIVING TRUSTS
I have a will. Why would I want a living trust?
Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you die. A will must be validated by the probate court before it can be enforced. Our Firm has been advocates of the implementation of living trusts since 1979 and have had decades of experience in their creation and funding.
Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets before you die-a concern of millions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will-the revocable living trust. It avoids probate and lets you keep control of your assets while you are living-even if you become incapacitated and after you die.
What is a living trust?
A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust can avoid probate at death, control all your assets and prevent the court from controlling your assets if you become incapacitated.
Who should having a living trust?
Age, marital status and wealth don’t really matter. If you own titled assets and want your loved ones (spouse, children or parents) to avoid court interference at your death or incapacity, you should probably have a living trust. You may also want to encourage other family members to have one so you won’t have to deal with courts at their incapacity or death.
How does a living trust avoid probate and prevent court control of assets at incapacity?
When you set up a living trust, you transfer assets from your name to the name of your trust, which you control-such as from “Bob and Sue Smith, husband and wife” to “Bob and Sue Smith, trustees under trusted dated (month/day/year).”
Do I lose control of the assets in my trust?
Absolutely not. You keep full control. As trustee of your trust, you can do anything you could do before-buy and sell assets, change or even cancel your trust. That’s why it’s called a revocable living trust. Such a trust does not file a separate tax return as all income, expenses, etc, continues to be represented on your individual 1040. Nothing changes but the names on the titles.
Is it hard to transfer assets into my trust?
No, and your attorney, trust officer, financial adviser and insurance agent can help. Typically, you will change titles or real estate, stocks, CDs, bank accounts, investments, insurance and other assets with titles. Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
Some beneficiary designations (for example, insurance policies) should also be changed to your trust so that the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401K, etc. can be exceptions.)
Doesn’t transferring assets take a lot of time?
It will take some time-but you can do it now, or you can pay the courts and attorneys to do it for you later. One of the benefits of a living trust is that all of your assets are brought together under one plan. Don’t delay “funding” your trust; it can only protect assets that have been transferred into it.
Should I consider a corporate trustee?
You may decide to be the trustee of your trust. However, some people select a corporate trustee (bank or trust company) to act as trustee or co-trustee now, especially if they don’t have time, ability or desire to mange their trusts, or if one or both spouses are ill. Corporate trustees are experienced investment managers, they are objective and reliable, and their fees are usually reasonable.
If something happens to me, who has control?
If you or your spouse are co-trustees, either can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, the successor trustee you personally selected will step in. If a corporate trustee is already your trustee or co-trustee, will continue to manage your trust for you.
What does a successor trustee do?
Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or corporate trustee. If you choose an individual, you should also name some additional successors in case your first choice is unable to act.
Does my trust end when I die?
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age(s) you want them to inherit. Your trust can continue longer to proved for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses, and future death taxes.
How can a living trust save estate taxes?
Your estate will have to pay federal estate taxes if its net value when you die is more than the “exempt” amount at that time. If you are married, your living trust can include provisions that, will let you and your spouse use both of your exemptions and leave over $10 million estate tax-free to your loved ones, saving millions in federal taxes. Some states also have their own death or inheritance taxes.
Doesn’t a trust in my will do the same thing?
Not quite. A will can contain wording to create a testamentary trust to save estate taxes, care for minors, etc. But because it’s part of your will, this trust cannot go into effect until after you die and will be probated. So it does not avoid probate and provides no protection at incapacity.
Is a living trust expensive?
Not when compared to all of the costs of court interference at incapacity and death. How much you pay will depend primarily on your goals and what you want to accomplish.
How long does it take to get a living trust?
It should only take a few weeks to prepare the legal documents after you make the basic decisions.
Should I have an attorney do my trust?
Yes, but you the need the right attorney. An attorney who has considerable experience in living trusts and estate planning will be able to give you valuable guidance and peace of mind that your trust is prepared and funded properly.
If I have a living trust, do I still need a will?
Yes, you need a “pour-over” will that acts as a safely net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it into your trust. The asset may have to go through probate first, but it can then be distributed as part of your overall living trust plan. A guardian for minor children must also be named in a will.
Is a living will the same as a living trust?
No. A living trust is for financial affairs. A living will is for medical affairs-it lets others know how you feel about life support in terminal situations.