FAQ's About Living Trusts
1. I have a will. Why would I want a living trust?
2. What is Probate? And what is so bad about it?
3. Does joint ownership aboid probate?
4. Why do the courts get involved?
5. Can a power of attorney prevent the court from getting involved if I become incapacitated?
6. What is a trust?
7. How does a living trust avoid probate and prevent the court from stepping in if I become incapacitated?
8. Do I lose control of the assets in my trust?
9. Is it hard to transfer my assets into a trust?
10.How long does it take?
11. What about a corporate trustee?
12. Who has control if something happens to me?
13. What are the responsibilities of the successor trustee?
14. Who can be a successor trustee?
15. What happens to my trust when I die?
16. Can a living trust save on estate taxes?
17. Won't a trust in a will do the same thing?
18. Is a living trust expensive?
19. How long does it take to get a living trust?
20. Should I have an attorney do the trust?
21. If I have a trust, do I need a will?
22. What's the difference between a living will and a trust?
23. Are living trusts new?
24. Who should get a living trust?
25. Living Trust Benefits
1. I have a will. Why would I want a living trust?
This is one of the most common questions we get and a valid one. While a will is an important document to have, by itself it may not be the best plan for you and your family primarily because a will doesn't avoid probate and can only come in force when you die. Because it doesn't come into force until you die it offers no protection in case you become disabled.
Because it doesn't offer that protection, a court could easily take control of your assets before you die. A trust can avoid these issues by providing protections and instructions for not only when you die but in the event you become physically or mentally disabled all while avoiding probate.
2. What is probate? And what is so bad about it?
Probate is a legal process where a court oversees the distribution of your assets according to your will and making sure your debts are paid. In the event you die without a will, your assets are distributed according to the laws of the state where you live.
The first problem with probate is that it is expensive. You have to pay legal fees and other administrative costs before your heirs can receive their inheiritance. Also, if you have assets in multiple states your heirs might face multiple probates in each state because they all have different probate laws.
The second problem is that it is time consuming often taking between nine months to several years. Assets are usually frozen durning this time so an inventory can be taken and any distributions must be approved by the court and/or the exutor.
Third, this proceeding is all public. This allows any "interested party" to see what you owned and what you owed.
The biggest problem with probate is that your family has no control. The laws governing probate determine how long it takes, how much it costs, and what information becomes public.
3. Does joint ownership avoid probate?
This just postpones probate. For the most part, when one of the joint-partners dies, full ownership is transfered to the surviving partner. So if that owner dies at the same time or fails to appoint another joint-owner the asset must go through probate before it can be distributed to the heirs.
Other problems include the loss of control when you add another owner. Also there is an increased risk of being named in a lawsuit or the asset being seized by creditors and there are gift and other tax problems that should be considered. A will in most cases will not control jointly held assests, presenting the risk of disinheriting your family.
Some assets require all owners to sign to sell. In the event one of the owners becomes incapcitated your new "co-owner" is the court regardless of who the other owner is - even your spouse.
4. Why do the courts get involved?
If for some reason you can't conduct business due to a physical or mental incapacity (stroke, Alzheimer's, etc.) only a person appointed by the court can sign for you. This applies even if you have a will because a will doesn't go into effect until after you die.
Once the courts get involved they'll stay involved until you die or recover. The courts get to decide, not your family, how your assets are used in your care. This intrusion by the courts can and usually is costly, embarrassing, time consuming, and very difficult to end if you do recover. Also, this process isn't probate which your family will could have to go through the courts twice!
5. Can a power of attorney prevent the court from getting involved if I become incapcitated?
When you make a durable power of attorney, you name somebody that will manage your financial affairs if you ever become unable to do so. Many financial institutions won't honor a durable power of attorney unless it is on their form. The downside is that if they do accept it, it might work all too well. It is the equivalent of handing somebody a check book full of signed, blank checks allowing them to do whatever they want with your assets. However, when used with a trust it is very effective, alone it is extrememly risky.
6. What is a trust?
A living trust is similar to a will in that it contains your directions on what is to be done with your assets when you die. Unlike a will, however, a living trust doesn't have to go through probate (keeping your estate private), it can control your assets, and it prevents the courts from stepping and controlling your assets if you become incapacitated.
7. How does a living trust avoid probate and prevent the court from stepping in if I become incapacitated?
A trust is a seperate legal entity. What that means, is when you set up a trust you transfer your assets from your name to the name of your trust. For example, "John and Jane Doe, husband and wife" becomes, "John and Jane Doe, trustees under trust dated (date of trust)."
So legally speaking, you don't actually own anything, so there is nothing for the courts to control when you die or become incapacitated because everything belongs to the trust.
8. Do I lose control of the assets in my trust?
No you don't. You get to maintain complete control of your assets. As the trustee of the trust, you can continue to do everything you did before, buying and selling assets, change or cancel the trust if you want. The same tax returns are even filed, the only big change (other than avoiding the courts) are the names on the titles.
9. Is it hard to transfer my assets into a trust?
With the help of your trust officer, attorney, insurance agent, and financial advisor it is an easy process. You'll need to change the names on the titles of any real estate that you own in or out of the state and other titled assets like stocks, bank accounts, CDs, insurance, etc. You can also include jewlery, clothes, furniture, and other things that don't have a title.
Beneficiary designations should also be put in the name of the trust in case a beneficiary is no longer living or incapcitated when you die. This keeps them from being controlled by a court. Your 401K , IRA, etc can be exceptions.
10.How long does it take?
Setting up a trust will take some time. However, you can do it now, or delay and pay the courts and attorneys to do it later. Since a trust can only protect assets that have been transfered into it, delaying the "funding" of your trust can be disasterous.
11. What about a corporate trustee?
You can be the the trustee of your own trust. Some choose a corporate trustee such as a bank or trust company to act as a trustee or or co-trustee now if they don't have the time, ability, or the desire to manage the trust. Corporate trustees are experienced investment managers. Most of them have a very reasonable fee.
12. Who has control if something happens to me?
If you are a co-trustee with your spouse, either one of you can act and have instant control if one of you becomes incapacitated or dies. If you are the only trustee, or if something happens to both of you the successor trustee that you personally select will step in and continue to manage your trust for you.
13. What are the responsibilities of the successor trustee?
The successor trustee manages your assets and sees to your care if you become incapacitated. If you recover, control of the trust automatically returns to you. When you die, the successor trustee distributes your assets according to your wishes. This is done privately and quickly without the interference of the court.
14. Who can be a successor trustee?
The successor trustee can be an adult child, relative, or other trusted friend and/or a corporate trustee. If you choose and individual to be your successor trustee you should also choose several backups incase one is not able to act.
15. What happens to my trust when I die?
A trust doesn't have to die when you do. You assets can remain in the trust while being managed by the person or corporation you've selected, until the beneficiaries reach the age(s) you've chosen for them to inherit. Your trust can also remain in place to protect those assets from your beneficiaries' creditors, ex-spouses, and future death taxes or also to provide for a loved one with special needs.^Top
16. Can a living trust save on estate taxes?
For 2009, the first $3.5 million of your estate is tax free, for anything over that your federal taxes will excede 45%. If you are married, your trust can include a provision that will let you and your spouse to leave up to $7 million in your estate tax free.
17. Won't a trust in a will do the same thing?
No. A will can contain the wording required to save on estate taxes, care for minors, ect. (called a testamentary trust). However, because it is part of a will, it can't go into effect until the will has gone through probate. It also doesn't protect you and your assets if you are incapacitated.
18. Is a living trust expensive?
Not when compared to what you pay during court interference during probate and incapacity. The cost depends on how complicated your trust is.
19. How long does it take to get a living trust?
Drafting the legal documents usually only takes a few weeks after you make the basic decisions.
20. Should I have an attorney do the trust?
Yes. A local attorney who has experience in living trusts will be able to give you the counsel and guidence you need through the process. Some states allow paralegals are allowed to prepare trusts, however they cannot give legal advice.
21. If I have a trust, do I need a will?
A good trust will have a "pour-over" will. This is a safety net of sorts that catches all of your assets that you may have forgotten to put into the trust and then sends it to the trust when you die. Any forgotten may have to go through probate, but once it does it can be distributed as part of the living trust plan.
22. What's the difference between a living will and a trust?
A living trust is for your financial affairs while a living will is for your medical affairs. A living will informs others of your feelings aboutt life support in terminal situations.
23. Are living trusts new?
No, living trusts have been around for hundreds of years.
24. Who should get a living trust?
If you own titled assets and desire your loved ones to avoid court interference, you should consider a trust. You should consider encouraging other loved ones to get one as well so you won't have to deal with any courts in the event of their incapacity or death.
25. Living Trust Benefits
- Prevents courts from taking control of your assets if you become incapacitated
- Prevents your assets from going to probate.
- Provides privacy
- Reduces or eliminates estate taxes
- Brings all assets together in one plan
- Quicker distribution of your assets to your beneficiaries.
- Brings all your assets together under one plan
- Provides maximum privacy
- Assets can remain in trust until you want beneficiaries to inherit
- Easy to set up and maintain and relatively inexpensive
- Can be changed or cancelled at any time
- Difficult to contest
- Prevents court control of minors' inheritances
- Can protect dependents with special needs
- Circumvents unintentional disinheriting and other problems of joint ownership
- Peace of mind