Q: I have a will. Why would I need a living trust?
A: Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you die. A will must be validated 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.
Q: How does a living trust avoid probate?
A: When you set up a living trust, you transfer assets from your name to the name of your trust, which you control — such as from “Joe and Lisa Smith, husband and wife” to “Joe and Lisa Smith, trustees under trust dated (month/day/year).” Legally you no longer own anything; everything now belongs to your trust. So there is nothing for the courts to control when you die or become incapacitated.
Q: Does my trust end when I die?
A: Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the 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, spouses and future death taxes.
Q: Wh0 can be successor trustees?
A: Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should also name some additional successors in case your first choice is unable to act.
Q: What does a successor trustee do?
A: 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 resume control. When you die, your successor trustee pays your debts, files your tax returns and distributes your assets. All can be done quickly and privately, according to instructions in your trust, without court interference.
Q: Is a living trust expensive?
A: No. Not when compared to all of the costs of court interference at incapacity and death. How much you pay will depend primarily on your goals and what you want to accomplish.
Q: How long does it take to get a living trust?
A: It should take approximately 7 to 10 business days to prepare the legal documents after you make the basic decisions and complete the living trust questionnaire.
Q: Does joint ownership avoid probate?
A: Not really. Joint ownership usually just postpones probate. 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.
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. 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 incapacitated owner is your spouse.
Q: Why would the court get involved at incapacity?
A: If you can’t conduct business due to mental or physical incapacity (dementia, 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 and it, not your family, will control how your assets are used to care for you. This public, probate process can be expensive, embarrassing, time consuming and difficult to end. It does not replace probate at death, so your family may have to go through probate court twice.
Q: Do I lose control of the assets in my trust?
A: Absolutely not. You keep full control. As trustee of your trust, you can do anything you could do before. You can buy and sell assets, change or even cancel your trust. That’s why it’s called a revocable living trust. Nothing changes but the names on the titles.
Q: Who should have a living trust?
A: 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, you should probably have 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.
Q: What are some of benefits of a living trust?
A: Benefits include:
- Avoids probate at death, including multiple probates if you own property in other states.
- Prevents court control of assets at incapacity.
- Brings all of your assets together under one
- Provides maximum privacy.
- Quicker distribution of assets to beneficiaries.
- Assets can remain in trust until you want beneficiaries to inherit.
- Can reduce or eliminate estate taxes.
- Inexpensive, easy to set up and maintain.
- Can be changed or cancelled at any time.
- Difficult to contest.
- Prevents court control of minors’ inheritances.
- Can protect dependents with special needs.
- Prevents unintentional disinheriting and other problems of joint ownership.
- Professional management with corporate trustee.
- Peace of mind.