Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 4)

This is part 4 of the blog series entitled “Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ” discussing frequently asked questions about living trusts, probate, taxes and more.

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.

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 selected, until your beneficiaries reach the age(s) you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, ex-spouses and future death taxes.

How can a living trust save on estate taxes?

If you die in 2006 and the net value of your estate (assets minus debts) is more than $2 million, federal estate taxes must be paid on the excess at a rate of 46%. If you are married, your living trust can include a provision that will let you and your spouse leave up to $4 million estate tax-free to your loved ones, saving up to $920,000 in taxes.

Doesn’t a trust in a 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 the will is probated. So it does not avoid probate and provides no protection at incapacity.

Is a living trust expensive?

Not when compared to all the costs of court interference at incapacity and death. How much you pay will depend on how complicated your plan is.

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 need the right attorney. A local attorney who has considerable experience in living trusts will be able to give you valuable guidance and peace of mind that your trust is prepared properly. In some states, qualified paralegals can now also prepare trust documents; however, they cannot give you legal advice.

If I have a living trust, do I still need a will?

Yes, you need a “pour-over” will that acts as a safety 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 living trust plan.

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.

Are living trusts new?

No, they’ve been used successfully for hundreds of years.

Who should have 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, 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.

For additional questions about trust law, speak with our experienced Living Trust Lawyer in Los Angeles today.

Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 3)

This is part 3 of the blog series entitled “Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ” discussing frequently asked questions about living trusts, probate, taxes and more.

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.)
Doesn’t this 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 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.
If something happens to me, who has control?
If you and 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, they will continue to manage your trust for you.

For additional questions about trust law, speak with our experienced Trust Attorney in Los Angeles today.

Continue to: Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 4)

Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ

In this blog series, we will be going through frequently asked questions regarding various aspects of estate planning including living trusts, probate, taxes and more.

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 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 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. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. Because these costs can vary widely, be sure to get an estimate.

It takes time, usually nine months to two years, but often longer. 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.

For additional questions about trust law, speak with our experienced Estate Planning Attorney in Los Angeles today.

Continue to: Understanding Living Trusts: How You Can Avoid Probate, Save Taxes and More FAQ (Part 2)


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