Living Trusts

What is Probate and why does everyone want to avoid it?

What is a Living Trust?

What are the advantages of having a Living Trust?

Will I lose control over my assets if I establish a Living Trust?

Do I need to put everything in my Living Trust?

Why do I need a Pour Over Will if I have a Living Trust?

Q: What is Probate and why does everyone want to avoid it?

When a loved one passes away, his or her estate must go through a "settlement" process. Probate is generally needed to "unfreeze" assets owned solely in one's name at death. Probate can be a time-consuming, frustrating, and expensive process. Estate planning during lifetime can avoid probate, but after death probate is likely needed if assets are titled in the deceased person's sole name.

Every probate estate is unique, but most involve the following steps: 

  • Filing of a petition with the proper probate court
  • Notice to heirs under the Will or to statutory heirs if no Will exists
  • Petition to appoint an Executor or Administrator for the estate
  • Inventory and appraisal of estate assets
  • Payment of estate debts to rightful creditors
  • Filing of returns and payment of taxes, including estate taxes if applicable
  • Sale of certain estate assets
  • Accounting to court and interested parties
  • Final distribution of assets to legatees or heirs

The length of time needed to complete the probate of an estate depends on the size and complexity of the estate and the local rules and schedule of the probate court.

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Q: What is a Living Trust?

 A Living Trust may hold legal title to and provide a framework to manage your property. You are the Trustee and beneficiary of your Trust during your lifetime. If you are married, your spouse also may be a Trustee and beneficiary as well. In fact, many married couples have a joint Trust rather than separate Trusts. In any event, you also designate successor Trustees to carry out your instructions as you have provided in case of incapacity or death. These instructions for passing your estate may include the typical "who gets what" provisions of a Will, and they may provide for long term management for beneficiaries. A typical Living Trust becomes effective immediately and is "revocable", allowing you to make changes and even to terminate it.

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Q: What are the advantages of having a Living Trust?

One of the great benefits of a properly funded Living Trust is that it will avoid or minimize the expense, delays and publicity associated with probate.  During your lifetime, it may allow for the management of your affairs in case of your incapacity, without the need for a guardianship or conservatorship process. Like a Will, a Living Trust also may provide for the management and distribution of your assets after you pass away. A Living Trust, however, has certain advantages when compared to a Will. With a properly funded Living Trust, there is no need to undergo a potentially expensive and time-consuming public probate process. Trustees still must go through many of the same settlement steps, but they generally may do so privately and without the same formalities. A Living Trust may allow the expeditious transfer of assets after death without court interference. In short, a well-thought out estate plan using a Living Trust can provide your loved ones with the ability to administer your estate privately, with more flexibility and in an efficient and low-cost manner.

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Q: Will I lose control over my assets if I establish a Living Trust?

Absolutely not! During your lifetime, as long as you are mentally competent, you retain complete control over all your assets.  You may engage in any transaction as Trustee of your Living Trust that you could before you had a Trust.  There also are no changes in your federal income taxes.  If you filed a 1040 before you had a Trust, you continue to file a 1040 when you have a Living Trust. The Living Trust can be modified at any time or it can be completely revoked if you so desire. Upon your incapacity or death, your chosen successor Trustee takes charge, but they must administer your Trust in accordance with the law and your instructions laid out in the Trust. Upon your passing, the Trust becomes irrevocable so that no one can change your testamentary wishes. It may be helpful to think of your estate plan as a means to extend your control, rather than lose control, upon your disability or death.

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Q: Do I need to put everything in my Living Trust?

For every estate plan, "funding" is fundamental. Funding means seeing that assets are properly titled, and beneficiary designations are properly made, so that your estate plan will operate as intended. Improper funding means that assets may not reach the intended persons or may not pass to them in the intended way. Your estate plan may not work.

If you have a Living Trust based plan, you must decide what assets will be funded into the trust and what will be left out. This is an important part of the estate planning process. It is true that some assets may pass directly upon your death to other named persons and therefore may avoid probate without being funded into your Living Trust. These may include assets owned jointly with another person who survives you, such as a joint bank account. It may include accounts that are set up as a payable-on-death account (POD for short) or an "in trust for" account (a "Totten Trust"). And it may include assets with beneficiary designations, such as life insurance policies or many annuities, or IRAs, 401(k) plans, Keoghs, and most other retirement accounts. While these assets may avoid probate without naming your Living Trust as owner or beneficiary, it may be essential to an estate plan's other goals that these "non-probate" assets be retitled or beneficiary designations changed. For example, you may wish to ensure that the assets are subjected to the division and management provisions of your Living Trust. Therefore, when you do your estate planning, it is important to seek the counsel of an experienced estate planning attorney, especially one who is familiar with the intricate regulations of retirement accounts, to help you coordinate the titling and beneficiary designations of your assets with your overall estate plan.

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Q: Why do I need a Pour Over Will if I have a Living Trust?

If you have a Living Trust based estate plan, you also need a Pour-Over Will.  Its function is to "pour" into your Trust any assets which are not already in the Trust, so they are ultimately managed and distributed according to the terms of your Trust. It also is used to invalidate any Wills which you previously may have executed, and it will enable you to name a Guardian for minor children. 

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