At Hutchinson and Bloodgood LLP, we take the mystery out of estate planning while being sensitive to your family’s circumstances, needs, and concerns. Living trusts have become popular estate planning tools, but do you need one? Here are some answers to common questions about living trusts to help you decide whether to consider implementing one.
What is a living trust? With a revocable living trust, you transfer ownership of assets you choose to a trust while you're alive. The trustee then administers the trust according to the trust's terms. You can keep any or all of the income from the trust, act as trustee, change the trust's provisions, or even terminate the trust. However, once you die, a successor trustee takes over and the trust then becomes irrevocable, meaning no further changes can be made. The trust can continue to exist or can be terminated, with the assets distributed to heirs or to another trust.
What advantages are there to setting up a living trust? A living trust has several potential advantages:
· Trust assets will be distributed to your heirs without going through the probate process. This typically means heirs will receive their inheritances sooner, without probate costs.
· You can name a successor trustee to take over the trust's management if you become mentally or physically disabled. This is usually less expensive and less cumbersome than having the court appoint a conservator.
· By placing assets in the trust that require immediate management, such as a business, your successor trustee can immediately take over those assets after your death or disability.
· Since the trust's provisions are not subject to court review, it is usually more difficult for heirs to contest a living trust's terms than to contest a will.
· Property is subject to probate in the state in which it is located. Thus, if you own property in more than one state, your estate may have to go through two or more probate proceedings. Placing the property in a living trust bypasses the entire probate process.
What are the disadvantages of living trusts? Living trusts also have several potential disadvantages:
· Depending on the assets you own, you may not need a living trust to avoid probate. Insurance proceeds, retirement accounts, and jointly owned property pass to your beneficiaries without going through probate.
· Once you set up the trust, it must be funded by retitling assets to the trust's name. This can be time consuming and may require a significant amount of paperwork.
· Creditors have a limited time after your death to make claims against an estate in probate. There is no comparable time limit for living trusts, so creditors can make claims at any time.
Do living trusts save estate taxes? Because you retain control of the assets during your life, a living trust by itself does not reduce estate taxes. You can, however, make provisions in your living trust to preserve the use of your unified applicable exclusion amount or to set up other trusts that can help reduce estate taxes.
Is a will necessary when a living trust is in place? In most cases, you would still want a pour-over will that places any assets you intentionally or inadvertently left out of the trust into the trust after your death. Individuals with minor children will also want a will to name a guardian for their children.
Do all assets have to be placed in a living trust? You decide which assets should be placed in the trust. Assets with beneficiary designations, such as life insurance, individual retirement accounts, and retirement plans are generally not transferred to the living trust, although the trust can be named as beneficiary. Before doing so, however, you should understand the income and estate tax ramifications.
While living trusts can provide many estate planning benefits, they aren't appropriate for everyone. Contact us if you would like more information to make this decision. Our goal is to take the mystery out of estate planning and provide you a unique solution tailored to meet your needs.