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How To Make Sense of A Living Trust

Mar 30

I have the ability to make my own decisions. What's the point of having a living trust?

It's possible that a will is not the greatest option for you and your family, despite what you've heard. Due to the fact that a will does not avoid probate in the event of your death. Before a will can come into effect, it must be approved by the probate court.

Furthermore, a will offers no protection in the event of physical or mental incapacity because it can only take effect after your death. Many older Americans and their families are concerned that the court may easily take control of their assets before they die, which is a major concern.

Fortunately, a revocable living trust is a simple and effective alternative to a will. In the event of your death or incapacity, you can continue to manage your assets without having to go through the probate process.

What is probate, and how does it differ from a will?

In the event of your death, the court will use the probate process to ensure that your final wishes regarding the distribution of your assets and payment of your obligations are followed. State law dictates how your assets are allocated if you don't have a will in place.

Why is probate so bad?

It's possible to get ripped off. In order for your assets to be fully dispersed to your heirs, legal fees, executor fees, and other expenditures must be paid. It's possible that your family will have to deal with various probates if you possess property in multiple states. It's a good idea to find out what these fees are today, as they can vary greatly.
Typically, it takes between nine months and two years, but it might take longer. Assets are normally frozen for a period of time during which a complete inventory can be taken. Nothing can be sold or given away without the permission of the court or the executor. Requests for a living allowance may be declined if your family needs money to survive.

There is no privacy for you and your loved ones. Any "interested person" can see what you own, what you owe, and who will inherit your assets when you die because the probate process is open to the public. Disgruntled heirs are "invited" to contest your will using this method, and your family may be exposed to dishonest solicitors as a result.

Your family has no say in the matter. A person's estate will cost, how long it will take, and what information will be made public as a result of the probate procedure.

Do joint owners avoid probate since they own the property together?

Honestly, I don't think so. The use of shared ownership typically just delays the probate process. The full ownership of most jointly owned assets passes to the remaining owner without probate when one of the partners dies. The asset must be probated before it may be passed on to the beneficiaries if the original owner dies without adding a new joint owner or if both owners die at the same time.

Keep an eye out for additional issues. You relinquish control of the business when you bring on a co-owner. In the event of a litigation, your risks of losing the asset to a creditor are greatly enhanced Gift and income tax issues may arise. Furthermore, since most jointly owned assets are not subject to a will, you run the risk of leaving nothing to your loved ones.

All owners of certain assets, such as real estate, must sign off on the sale or refinance. A co-owner can become disabled, and even if that co-owner is your spouse, you could find yourself with a new "co-owner"—the court—instead.

Incapacity, why would the court become involved?

The only person authorized to act on your behalf in the event of mental or physical disability (such as dementia, stroke, heart attack, etc.) is a court-appointed representative. (Keep in mind that a will only takes effect at the demise of its maker.)

The court, not your family, will regulate how your assets are used to care for you once the court becomes involved. An expensive, time-consuming, and difficult-to-end public probate process can be the result. You may have to go through probate court twice if you use this service!

Does a durable power of attorney prevent this from happening?

In the event that you become incapacitated, you can appoint a person to handle your financial affairs on your behalf. Financial institutions may refuse to accept one unless it is on their form. When someone is given a "blank check" to do anything they want with your assets, it may work too well. With a living trust, it can be quite beneficial, but on its own it's dangerous.

What is a "living trust"?

As with a will, a living trust provides instructions for how your assets should be distributed when you die. There are many advantages to a living trust over wills in that it avoids probate at death and can be used if you become incompetent.

When a person becomes incapacitated, how does a living trust avoid probate?

For example, "Bob and Sue Smith, husband and wife" becomes "Bob and Sue Smith under trust dated (month/day/year)" when you set up a living trust, which you control.

As a result, you are no longer legally entitled to anything. As a result, if you die or become handicapped, the courts have no power to intervene. It's a basic idea, but it's the one that keeps you and your loved ones out of court.

What happens if I don't have access to the funds in my trust?

No, there isn't. You are in complete command. It's your right as a trustee to buy and sell assets, alter, or even terminate your trust. What you'll find in the name of the trust is that it's revocable. You even use the same forms when it comes to filing your taxes. Only the titles' names have been changed.

Is it difficult to transfer my trust's assets?

Absolutely not, and you can get assistance from a lawyer, trustee, financial advisor, and insurance agent. In most cases, you'll change the titles of real estate, stocks, CDs, bank accounts, investments, insurance, and other assets that have titles. The majority of living trusts also include items that do not have titles, such as jewelry, clothing, art, and furniture.

You should also move beneficiary names on insurance policies to your trust so that the court cannot control them if the beneficiary becomes incapacitated or passes away before your death. (Exceptions include IRAs, 401(k)s, and the like.)

Isn't this time-consuming?

Despite the fact that it will take some time, you have the option of doing it yourself or paying the courts and attorneys to do it for you later. With a living trust, all of your assets are consolidated into a single strategy. In order to secure your assets, you must transfer them into a trust.

Could a corporate trustee be an option for me?

As the trustee of your trust, you have the option of making your own decisions. A corporate trustee (a bank or trust business) may be chosen to function today as trustee or cotrustee, especially if one or both spouses are unfit to handle their trusts for a variety of reasons. As skilled investment managers, corporate trustees may be trusted to be objective, and their fees are usually extremely fair.

Who is in charge if something bad occurs to me?

Having co-trustees means that if one of you becomes incompetent or dies, another can take immediate action. You have the power to appoint a replacement trustee in the event that you or both of you die, or if you are the sole trustee. If you already have a corporate trustee or co-trustee managing your trust, they will continue to do so.

It's important to understand the role of the replacement trustee

In the event of your incapacity, your successor trustee will manage your financial affairs and provide you with care while you are unable to do so yourself. If you're able to recover, you're back in charge. When you die, your successor trustee takes care of your obligations, taxes, and assets. If you follow the directions in your trust, you can complete this process quickly and confidentially without having to deal with the courts.

Who can be a trustee's successors?

It is possible to appoint a corporate trustee as well as an individual successor trustee. In the event that your top candidate is unable to fulfill his or her duties, you should also designate a few alternates.

Is my faith shattered when I die?

A trust, in contrast to a will, is not irrevocable upon your death. Until your beneficiaries reach the age(s) at which you want them to inherit, your trust's assets can be administered by the trustee you've chosen. The funds in your trust can be shielded from beneficiaries' creditors, spouses, and future death taxes for as long as you want to provide for a special needs loved one.

In what ways does a living trust save money on estate taxes?

If the net value of your estate at the time of your death exceeds the "exempt" level, federal estate taxes will be due. Depending on where you live, you may also be subject to a death or inheritance tax. You and your spouse can save a significant amount of money for your loved ones if your living trust includes a provision that allows you to use both your exemptions.

Surely, trusting in a will does the same

Almost, but it's not quite there yet. A testamentary trust can be established in a will to reduce estate taxes and provide for the needs of minors, among other things. However, because it's a part of your will, this trust won't go into effect until after your death and the probate of your will. Since there is no protection in the event of incapacity, it does not prevent probate.

How much does it cost to set up a living trust in California?

When compared to the costs of judicial intervention in the event of incapacity or death, there is no comparison. The price you pay will mostly rely on your aims and what you hope to achieve.

A living trust can be set up in as little as two weeks

After you've made the fundamental choices, putting together the legal documentation shouldn't take more than a few weeks.

Is it necessary for me to hire a lawyer to draft my trust?

Yes, but you'll need a good lawyer to help you out. Local living trust and estate planning attorneys can provide you with sound advice as well as reassurance that your trust is appropriately formed and funded.

What if I already have a living trust?

A "pour-over" will is necessary to ensure that assets are transferred into your trust if you neglect to do so. In the event that you die, your will "catch" the forgotten asset and transfer it to your trust. Your overall living trust strategy may necessitate the asset going through the probate process, but it can then be distributed. A guardian must be appointed in your will if you have minor children.

It's unclear if a "living will" is, in fact, a "living trust"

No. Financial matters are handled via a living trust. The purpose of a living will is to express your wishes about life support in the event that you become terminally ill.

Living trusts are new, correct?

No, they've been around for a long time and worked well.

There are several different types of living trusts

It doesn't really matter what your age, marital position, or fortune is. In order to protect your loved ones (spouse, children, or parents) in the event of your demise or incapacity and your titled assets, you should consider setting up a living trust. Other family members should also make a will so that you don't have to deal with the courts if they become incapacitated or die.