Trusts – Providing for your loved ones when you’re gone
Frequently Asked Questions About Trusts
What is a Living or Revocable Trust?
A Living or Revocable Trust can be created by you to manage your assets while you are alive. For this to work, you will be required to transfer your assets to the Trust. However, you will still care for and control your property until your death. At your death, your Trust will continue and a Trustee will distribute according to your wishes.
The reason why people prefer a Living or Revocable Trust is that your assets can be easily passed to your beneficiaries without having to deal with the hassles of Probate. However, the disadvantage is that selling or handling assets controlled by the Trustee can be more difficult.
Every family is different and I can help you to decide on the best path to take based on your own individual circumstances. Everybody needs a Will. Not everyone needs a Trust.
If I have a Living Trust, do I need a Will?
Yes, you still need a Will even when you have a Living Trust. A Will is required to transfer your assets to your trust after you die. Also, some money may be paid to your Estate after you die depending on the circumstances surrounding your death. In this case, a Will must stipulate the conditions for transferring the money to your Trust.
A Will is required to name the individuals who will represent you and the person who will be responsible for the welfare of your children. All these are not part of the responsibilities of a Living Trust. Your Personal Representative will be responsible for caring for things that are not the responsibility of the Trustee.
Who can be a Trustee?
A Trustee doesn’t have to be a highly skilled individual. Any competent and caring adult can serve as Trustee. Usually, the grantor names themselves or a spouse as the initial Trustee. This is done because they desire full or total control of their assets and property during their lifetime. Some people, however, choose either a friend, relative or a qualified corporation to serve as the trustee.
If you decide to choose one individual as your Trustee, you will also have to name a Successor Trustee. This party serves if the first Trustee is either unable or unwilling to carry on the responsibility of being a Trustee.
The many tasks and responsibilities of a trustee include paying out income from the Trust to its beneficiaries, managing the property, filing federal and state tax returns, and distributing all assets listed in the Trust to the recipients in the event of the grantor’s death.
When and how can I fund a Living Trust?
You need not put substantial amounts of money into the Trust after you create it. Some people put a small amount, like $10, into the Trust as initial funding. It is intended for future use, particularly during old age or disability. The Trust remains empty until that stage of your life reaches, but it is effective if you wish to put more funds in.
Once you decide to add large amount of assets or property to the trust, it automatically becomes funded. From then onwards, the Trustee has to carry out their duties. Some people put most or all of their property into a Trust from the start. Others put some property at the initial stage and add more as time goes by. Others draw up a Trust so that the majority of their property is transferred only at the time of their death.
To accomplish this, you would use a Simple Will or Pour-Over Will. This will fund the Trust with properties you didn’t include in the Trust when you were alive. To avoid probate, most grantors fund their trust during their lifetime.
What is a Trust created by a Will?
You can create a Trust to go into effect when you die. This Trust keeps your property for the benefit of another individual. A Trust can help hold your property if you have minors. It can also contribute to providing your spouse with a source of income.
Your Trust is managed by your Trustee. This person will be responsible for protecting all your assets. It can be any individual you trust. The Trustee will also be able to terminate the trust as instructed by you on your will.
What is an Irrevocable Trust?
An Irrevocable Trust, unlike a Revocable Trust, cannot be changed, modified or revoked after it has been created. Once an asset has been transferred to an Irrevocable Trust, not even the grantor has the legal power to remove the property from the Trust or revoke it.
What is a Living Trust?
A Living Trust is a document that bestows the responsibility for managing any property to an individual on behalf of others. It is called a Living Trust because the party responsible for the document creates it while they are still alive.
It is regarded as a Revocable Trust because, as long as the owner of the document is mentally competent, he or she can change or call off the terms of the Trust at any time. Usually, a revocable trust becomes irrevocable when the owner dies.
A Living Trust involves the following parties:
- The Grantor: this is the individual who draws up the Revocable Trust.
- The Trustee: this is the party who agrees to accept the management of the Grantor’s property as the agreement stipulates. A Grantor can name multiple trustees, thus forming co-trustees who have to act together.
- The Beneficiaries: these are the parties who will receive the assets and property stipulated in the Trust.
How does a Will differ from a Revocable or Living Trust?
Both a Living Trust and a Will allow you to stipulate how your property is distributed among your beneficiaries when you die. A Will is subject to Probate, while a Living Trust is not. A Living Trust allows you turn over all or some of your property to your Trustee to manage during your lifetime.
A Will allows you to keep your property in your name and manage it yourself while you are alive. A Living Trust allows you to do something a Will cannot, which is spelling out how your property is managed if you suffer a physical disability during your lifetime. A Living Will is also different from a Revocable Trust. Living Wills state your preferences regarding end of life issues.
What does a Revocable or Living Trust allow?
A Revocable it Living trust can:
Provide Financial Management of Property
You can act as a Trustee at the initial stage and later choose not to do so. The Successor Trustee you have selected will take over your property management. You will have to pay this individual a reasonable fee.
Offer Property Management When you are Incapacitated
If you become ill or become disabled and are rendered incapable of managing your property, a Trustee can do this for you. If there is no Trust, you might need a Conservatorship or Guardianship if you don’t have Power of Attorney.
This removes the hassle and expense of making such arrangements if your Trust has been properly funded. If your trust stands unfunded when you suffer illness or disability, you will need to give someone a Power of Attorney to allow that individual to transfer your property to the Trust.
Provide for Minors Upon Your Death
In a Revocable or Living trust, a Grantor can make provisions for their spouse and children just as it is with a Will, with the exception of naming Guardians for their minor children.
Property in a Revocable Trust doesn’t pass through Probate following your death. If you die leaving some assets that were never transferred to the Living Trust, probate is usually required. If you own property in another state, Probate could be necessary to transfer the assets to your beneficiaries.
Putting that property in the Trust can avoid that. The main benefit of staying clear of Probate is confidentiality. A Trust doesn’t become a part of public record unless the Trustee or Beneficiary insists on involving the court. A Living or Revocable Trust also avoids the filing fee for Probate.
Eliminate Delays in Distribution of Your Property
This is an advantage of avoiding Probate as the Probate process can delay property distribution. If there is a trust, the trustee can distribute your property among your beneficiaries sooner. Unlike under a Will, a Trust operates without the court’s supervision, with the exception of when someone requests for such guidance.
What doesn’t a Revocable Trust do?
A Revocable Trust:
Won’t save you from income taxes
Due to the fact that you can cancel a revocable living trust any time you wish to, the federal and state governments view the income the trust accumulates as your income. Usually, a trustee pays the grantor all the income, along with any amount of principal required for your care if you are disabled.
Won’t reduce Estate Taxes more than other Estate Planning tools
The property in your Trust, when you die, will become part of your taxable estate. Your estate will need to pay taxes if your estate is above federal exemptions amounts.
Won’t remove the costs associated with managing your Estate completely
You may have to pay a Trustee to prepare documents, transfer property, file tax returns, and so on. These costs are similar to what a personal representative receives in controlling the probate of the estate, minus the probate filing fee.
Does not cover Creditor Claims in the event of your Death
A benefit of Probate is that a Creditor’s Claim period expires a short time following your death. To have the ability to collect, a creditor has make a claim shortly following notice about the opening of your Probate Estate. This guarantees beneficiaries will get the property, without worrying that later they will need to have to pay creditors. If you use a trust and your estate avoids probate, your beneficiaries should have no such protection.
Does not eliminate the need for a Will
You might have property that didn’t get transferred into your Trust. You need a Will to move that property to the Trust after your death. Also, your estate may receive money after you have died, such can be a settlement that then needs to be distributed. You need a Will to name a Guardian for your minor children.
Does not eliminate the need for a Power of Attorney
You might become unable to control your property before you have transferred all of it to your Trust. If that is the case, the individual appointed with a Power of Attorney could handle this for you. A Trustee, on the other hand, can make decisions about property in the Trust already. Your Agent can also take care of health benefits, living expenses, taxes, and other matters.
Who can be a Beneficiary to a Revocable or Living Trust?
When a Grantor sets up a Revocable or Living Trust, they are usually named the first Beneficiary. However, if you are married, you have the option to name yourself and your spouse as beneficiaries. The Revocable or Living Trust may also specify who will receive the property upon your death. You have complete control and flexibility as to who does and who does not inherit your property and assets.
Questions about a Special Needs Trust? Check out the Special Need Trust page here.