Understanding Living Trust
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 primarily because a will does not avoid probate when you die. A will must be verified by the probate court before it can be enforced.
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 common concern for millions of older people 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 probate?
Probate is the legal process through which the court sees that, when you die, your debts are paid and your assets are distributed according to your will. If you don’t have a valid will your assets are distributed according to state law.
What’s so bad about probate?
· IT CAN BE EXPENSIVE. Legal/executor fees and other costs must be paid before your assets can be fully distributed to your heirs. Costs vary in each state, but are usually estimated at 3-8% of an estate’s value. If you own property in other states, your family could face multiple probates, each one according to the laws in that state.
· IT TAKES TIME. The time involved is no less than nine (9) months, and could last up to two (2) years. During part of this time, assets are usually frozen so an accurate inventory can be taken. Nothing can be distributed or sold without court and/or executor approval. If your family needs money to live on, they must request a living allowance, which may be denied.
· YOUR FAMILY HAS NO PRIVACY. Probate is a public process, so any “interested party” can see what you owned and who you owed. The process “invites” disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.
· YOUR FAMILY HAS NO CONTROL. The probate process determines how much it will cost, how long it will take, and what information is made public.
Doesn’t joint ownership avoid probate?
Not really, it usually just postpones it. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems, as well. And since a will does not control most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new co-owner–the court. Even if the ill owner is your spouse.
Why would the court get involved at incapacity? If you can’t conduct business due to mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), only a court appointee can sign for you–even if you have a will. (Remember, a will only goes into effect after you die.)
Once the court gets involved, it usually stays involved until you recover or die. The court, not your family, controls how your assets are used to care for you. This public process can be expensive, embarrassing, time consuming and difficult to end if you recover. And it does not replace probate at death, your family could have to go through the court system twice!
Does a durable power of attorney prevent this? A durable power of attorney lets you name someone to manage your financial affairs if you are unable to. However, many financial institutions won’t honor one unless it’s on their form. And, if accepted, it may work too well–it can simply give someone a “blank check” to do whatever he or she wants with your assets. It can be very effective when used with a living trust, but risky when used alone.
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 avoids probate at death, can control all of your assets, and prevents the court from controlling your assets at incapacity.
How does a living trust avoid probate and prevent court control of assets at incapacity? When you setup a living trust, you transfer assets from your name to the name of your trust, which you control, for example, from “Bob and Sue Smith, husband and wife” to “Bob and Sue Smith, as Trustees of the Smith Trust dated 1/1/20__.”
Legally you no longer own anything (don’t panic: everything now belongs to your trust), so there is nothing for the courts to control when you die or become incapacitated. The concept is very simple, but this is what keeps you and your family out of the courts.
Who should have a living trust?
It doesn’t matter how old you are, how much you own, or if you’re married or single. If you own titled assets and want your loved ones to avoid the problems of court interference at your death or incapacity, you should consider a living trust. You may also want to encourage other family members to have one so you won’t have to deal with the courts at their incapacity or death.
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/sell assets, change or even cancel your trust (that’s why it’s called a revocable living trust). You even file the same tax returns. 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. You need to change titles on real estate (in and out-of-state) and other titled assets (stocks, CDs, bank accounts, other investments, insurance, etc.). Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
Also, beneficiary designations on some assets (like insurance) should be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401(k), etc., can be exceptions.) We at ALTA Estate Planning Services will assist you in the transfer (called “funding” your assets to the trust), of the major assets such as real property (home, vacation home, vacant land, etc.) all as a part of the same quoted fee we will provide you during your initial consultation. Again, the initial consultation is at no charge or commitment to you. Most other trust document preparers leave this funding/transfer of your assets to your trust for you to complete. This is unfair and dangerous to you. If you do not properly fund your trust with your assets, you do not have the protection of the trust agreement, in spite of your best intentions and beliefs. Your assets will be subject to probate and huge estate taxes. This is why we believe that it is so important to properly and fully fund your trust. We have professional staff ready and willing to assist you in this vitally important process. If you have a trust and related documents, it makes good sense to have your trust and funding of your assets reviewed by our staff. We charge a reasonable fee for this service. Please call our office to schedule a consultation.
Doesn’t this take a lot of time?
It will take some time, but you can do it now, or your loved ones can pay the courts and attorneys to do it for you later. One of the benefits of a living trust is that all 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 the time, ability or desire to manage 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 very reasonable.
HOWEVER, CORPORATE TRUSTEES USUALLY LIMIT THEIR FOCUS AND OBJECTIVES TO PORTFOLIO MANAGEMENT ONLY AND FORGET WHAT IS MOST IMPORTANT, YOUR SURVIVING FAMILY MEMBERS AND LOVED ONES WHO NEED THE GUIDANCE OF A TRAINED PROFESSIONAL, WILLING AND CAPABLE OF HANDLING THE NEEDS AND DESIRES OF YOUR LOVED ONES, DURING THEIR LIVES AS WELL.
If something happens to me, who has control?
If you and your spouse are co-trustees, either of you 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, your handpicked successor trustee will step in. If a corporate trustee is already your trustee or co-trustee, they will continue to manage your trust for you.
What does a successor trustee do?
If you become incapacitated, your successor trustee looks after your care and manages your financial affairs for as long as needed, using your assets to pay your expenses. If you recover, you automatically resume control. When you die, your successor trustee pays your debts and distributes your assets. All this is done quickly and privately, according to instructions in your trust, without court interference.
A private fiduciary is a certified, bonded, licensed and insured professional who can step in and solve many of your family concerns of management and distribution of your estate assets following your death.
The benefits of selecting an individual successor trustee (after your surviving spouse, of course), is that there will exist direct, person-to-person communication addressing the concerns and needs of the management of your trust estate, as well as your designated beneficiaries.
What relationship does/should my successor trustee maintain?
It is essential that your successor trustee develop a close working and trusting relationship with your financial advisor, now, while you are alive to experience this bonding. This action will give you the confidence, comfort and Peace of Mind we promise you. We always recommend that, as part of the process of preparing the paperwork constituting your trust, we also meet with your significant family members. There is no fee for this meeting and it can take place at anytime or by telephone. This adds the teamwork which we stress as being more important than anything else in times of crisis. Stop and think about this for a moment. We are sure you will agree.
Mark L. Fishbein is named in approximately six hundred (600) trusts as successor trustee, in which we assist our clients over the twenty (20) years of his experiences.
We believe that the proper handling of your needs and the protection of your family’s future financial security does not end with the paperwork; but rather, our responsibilities and obligations first begin at this point.
We commit to you our loyalty and service in times of crisis, and we do not bill the typical rates most attorneys charge, but rather the recommended private fiduciary rates. We are willing to do this because we realize how important this responsibility is. You will never appreciate the security we will provide to you and/or your loved ones in times of need. Our reward is the good feelings we have knowing in our hearts that we have helped a client in need. Your future referrals don’t hurt either!
Who can be successor trustees?
Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should name more than one 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 person or corporate trustee you have chosen until your beneficiaries (including minor children) reach the age(s) you want them to inherit, or to provide for a loved one with special needs.
How can a living trust save on estate taxes?
The Federal goverment recently passed new tax regulations regarding estate/death taxes to be paid by our estate/heirs when we pass away. The goverment increased the Unified Tax Credit available to each estate (which is the amount of assets we can pass on to our heirs upon our death with no estate tax consequences). This amount is now $5 million dollars per person and $10 million dollars per couple. Therefore, very few people need to worry about estate/death taxes to be paid by their estate and or heirs when they die. If the net value of your estate when you die is more than $5,000,000 or $10 million dollars for a husband and wife, then upon such event, Federal estate taxes must be paid (starting at 37%). If you are married, special provisions added to your living trust to allow you and your spouse to leave up to $10 million dollars tax-free to your beneficiaries
Doesn’t a trust in a will do the same thing?
No. A will must go through probate, which is a stressful, costly and time-consuming process for your remaining family members and loved ones. See Mark’s story about the painful and confusing time he experienced with his father’s death. His message is a strong one, and he believes the most important message you can follow through with is, “Don’t do to your loved ones what my father did to me.” For a better comparison and clear analysis of the benefits of a Trust over a will, see Comparisons of Will/Probate versus Trust Planning. These charts highlight the consequences of a disability and/or death situation with a will versus a trust program with teamwork in place.
Is a living trust expensive?
Not when compared to the costs and loss of control that come with court interference at incapacity and death. How much you pay will depend on how complicated your plan is. Be sure to ask for an estimate in advance.
We at ALTA Estate Planning Services have written and copyrighted our own versions of trusts. This provides you with three (3) huge benefits:
1. The costs are lower because we do not have to pay a license fee for the use of another proprietary’s work. This cost savings is past along to you.
2. You will receive a state-of-the-art trust, well organized and in plain English, with all the current tax laws and benefits added for your benefit.
3. The trust you will receive will be tailor-made for your specific family needs and desires, based upon your financial status and family history. You will get a document that you and most important, your surviving spouse and children will be able to understand and work. And remember, we are just a telephone call away with our Emergency Hotline Program, at no cost at all to you or your loved ones when the time comes for our surviving spouse and/or children to take over the family affairs and financial matters.
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 prepare my trust?
Not necessarily, and with ALTA Estate Planning Services, you receive the benefits of Mark’s experience and knowledge of the law, as well as his financial planning services. Someone with considerable experience in living trusts can provide valuable guidance and peace of mind that your trust is prepared properly. Also, it is important to interview your prospective trust preparer since he/she will be a part of the team for your surviving spouse and/or children if, and when, something should happen to you. We cannot stress enough the importance and value of knowing we will respond pursuant to the Emergency Hotline Program and be at your family members’ side through any ordeal, should the need arise. You cannot put a price on this comfort and Peace of Mind we offer to our clients AT NO ADDITIONAL CHARGE. The reasons we are willing to do this is because:
1. We realize just how important this process and our presence means to the remaining family members in a time of crisis; and
2. It is Mark’s way of healing from the insanity, chaos and pain he experienced when his father died, leaving no support to guide him through the three (3) years of probate. That single event dramatically affected Mark’s life, and he will never fully recover, but it is healing to know that there is a purpose for the horror he experienced following his father’s death; that being able to help other families not experience the pain and additional suffering he experienced because of poor estate planning.
You have a chance to take this very important step in your life to protect your remaining family members from the horror of probate. See Comparisons of Will/Probate versus Trust Planning.
If I have a living trust, do I still need a will?
Yes, a pour-over will act as a kind of “safety net,” in the event you forget to retitle an asset in the name of your trust. Upon your death, the will “catches” the forgotten asset and sends it into your trust. The asset may still have to go through probate first, but at least it can then be distributed as part of your living trust plan.
Is a “living will” the same as a living trust?
No. A living trust is for the management and distribution of your financial affairs. A living will is for medical affairs. It lets others know how you feel about life support in terminal situations.