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The Last Will and Testament Alternative:
When deciding which instrument to use to protect one's estate, a living trust is often overlooked. Many see living trusts as an expensive and complicated alternative to the traditional last will and testament. The truth of the matter is, a living trust is just as simple as a last will and testament to arrange, and with the help of your new attorney, can be prepared properly and swiftly without breaking the bank. Living trusts are quickly becoming a fashionable instrument today due to the many advantages they present over a Last Will and Testament.
The living trust at MyWillPros.com is a revocable trust. Revocable trusts are formed by individuals usually called grantors (creators) and take effect during the grantor's life. In essence, a revocable trust is a written instrument, created by an individual or individuals, in the case of a Joint Revocable Trust, which creates a vehicle or entity in which the creator transfers legal title of his or her assets and property to the trust and names a trustee, very commonly him or herself, to look after the trust property. The grantor maintains complete control over the trust, benefits from the principal and income of the trust for life and can access any of the trust assets at any time. The grantor may also, at any time during his or her life, revoke, alter or amend the trust.
When the grantor dies, the trust assets and property are either distributed to or held in further trust for other named beneficiaries, as with a will but without going into probate. A revocable trust is most appropriately used in conjunction with a will, usually referred to as a pour over will. Even though the grantor may place most of his assets in the trust during his lifetime, there will usually be some property which is not so transferred. That property can be transferred pursuant to the pour over will to designated beneficiaries but usually the assets are "poured over" into the trust and distributed pursuant to the trust provisions.
What are the Advantages of a Living Trust over a Last Will and Testament.
Privacy: Unlike a last will and testament, which is filed with the probate court and becomes a public record, visible to all, a revocable trust provides privacy in regards to your estate.
Efficient: A living trust can prevent the excessive delays in the distribution of your estate, commonly encountered while probating a last will and testament, because of its freedom from the probate courts and the rules and requirements which dictate the process.
Less Expensive In the Long Run: Because there is no probate proceeding, there are no court fees, attorney fees or filing fees, as with a last will and testament. Generally, the administrative expenses associated with a living trust is considerably less expensive than the expenses associated with probating a will and therefore less burdensome on your estate.
Out of State Real Estate: If you have real estate (land, house, condominium, etc.) outside of your state of domicile, and you die with a last will and testament, that property would be involved in an entirely different probate proceeding in the governing state's court. Therefore there would be two probate proceedings in entirely different locations. With a living trust, the title to that real estate would be placed into the trust and would therefore be distributed appropriately, with all of the other assets in the trust, without the direction of the court.
Almost Always Valid: The validity of a living trust is much less likely to be attacked than a last will on grounds of mental incapacity, fraud, or undue influence.
Control: During your life, as creator of a living trust, you are able to set a pattern for how you would like the trust managed by the trustee in the event of your death or incapacity.
Ease of Amendment: Amending a living trust is far easier than amending a will.
What are the Disadvantages of Revocable Living Trusts
Assuming that the trust is properly drawn and funded, it is difficult to say that a living trust would actually be harmful to its creator, however there are some drawbacks to the revocable living trusts which evolve around cost and inconvenience.
Higher Up Front Cost: The cost of preparing and funding a trust is more expensive up front than the cost of preparing a will. Once a will is drawn there are no other documents required to be drawn and costs are generally confined to the cost of its preparation. In the case of a living trust, the trust document has to be prepared and a pour over will must also be prepared. Then the trust must be funded, which entails transferring all of your assets to the trust. When real estate is transferred to the trust, deeds and other necessary documents will have to be prepared by an attorney adding to the up front expenses.
Inconvenience: As stated above, it is essential that the trust be funded. If the trust has no assets in it, the trust is basically worthless. Transferring the bulk of one's assets can often be time consuming and frustrating. The trust must remain funded for the rest of one's life, therefore, any new purchases must be put into the trust. It doesn't happen automatically. The transfer of stock or other securities can require the signing of a multitude of forms some of which may need to be notarized or "medallion guaranteed". Historically, those trusts which do fail to operate as intended, fail because of the grantor's neglect in funding the trust properly.
Oversights: During the probate proceedings of a will, the executor is under close scrutiny of the court because of accountings, inventory of assets, etc. In the case of the appointment of a trustee, an oversight by a trustee may go unnoticed or undetected for an appreciable period of time.
What are the Differences between a Revocable Living Trust and a Last Will and Testament?
In its simplest terms a living trust is a relationship created by a transfer of assets during one's lifetime to one person or an institution for his or her benefit or the benefit of another. A Last Will and Testament is an expression, almost always written, of a person's wishes as to the disposition of his property to take effect after his death. With a Will a transfer of assets takes place following death whereas with a living trust, the transfer of assets to the trust takes place during one's life.
What are the Income Tax Consequences of a Revocable Trust? There are none.
Because the grantor continues to benefit from the income from the assets in a living trust during his or her life, and may revoke the trust at any time, the income from the assets in a living trust is treated, for tax purposes, as income of the grantor. Therefore, the grantor need only file one personal income tax form which includes income from the trust. There is no specific income tax filing on behalf of the trust.
Is it difficult to Revoke or Amend a Living Trust?
Ease of Amendment: The creator or grantor can amend the trust easily, and at any time, which amendment needs to be in writing, signed and notarized. The provisions of the trust allow for an easy amendment of the trust provisions, as opposed to a much more difficult and time consuming amendment to a will. While there are different requirements by state in regards to amendment of a living trust, generally, all that is required is the amendment is signed by the grantor in front of a Notary Public. Amending a will, on the other hand, is performed by the preparation of a codicil to the will and has to be executed with the same formality as the original will, which is much more involved and cumbersome.
Revocation of the Trust: By its very nature the trust is readily revocable by its creator keeping in mind that assets would have to then be transferred out of the trust and conveyed in accordance with the intentions of the grantor.
Will a Revocable Living Trust protect me in the event of my future incapacity?
In an individual’s trust, the trust document will contain a provision appointing a successor trustee who can continue to function and manage the trust assets in the event the trustee (usually the grantor) is unable to do so.
In the case of a joint living trust, as with a husband and wife, they are each appointed co-trustees and would each assume sole responsibility for the trust should the other be incapacitated. If both co-trustees are rendered incapacitated, a successor trustee, appointed in the living trust document, assumes responsibility for the trust.
Incapacity Standard: A trustee to a living trust is incapacitated when he or she is no longer able to reasonably manage the trust. The trust document will specifically define, in detail, what constitutes incapacity of the trustee (usually the grantor). Within the document there are important safeguards aimed at preventing premature removal of an aging trustee which include mandatory written opinions from an attending physician and one other physician before removal of the trustee can occur.
Will a Revocable Living Trust Protect My Assets Against My Creditors?
No. Any trust assets, and therefore income from the assets, which the grantor can touch can also be touched by the grantor’s creditors. The creditors of any beneficiaries of trust assets can not touch the principle or income of those assets until they are transferred to the beneficiaries.
Which Assets are Not Transferred into a Revocable Living Trust
Specific Bequests: If you have certain items (ie: grandmother’s lamp, etc.) that you want to go to certain individuals or entities it would be a good idea to have those items pass by means of the pour over will whether they be bequests to a charity, a gift to a friend, etc.
Qualified Retirement Plans and Tax Sheltered Annuities- In no event should such assets be conveyed into the trust because the conveyance will trigger an immediate income tax on the assets being transferred. A tougher issue is whether to name the trust as a beneficiary of such accounts. On the one hand, naming the trust as the beneficiary, you can control how and when the asset is distributed and you can also place appropriate limitations in the case of minors, spendthrifts etc. On the other hand, designating the trust as the beneficiary of such accounts, takes away the ability to prolong income taxation. Before naming the trust as a beneficiary it is strongly suggested that you consult with your attorney or accountant.
Who would be the best Trustee?
Often the grantor(s) or creator(s) of the trust will act as the trustee. This, obviously, gives he or she or them total control of all the assets placed into the trust. In the case of a husband and wife establishing a joint trust, the surviving spouse will often continue to serve as the trustee and only when the surviving spouse dies or becomes incapacitated would the successor trustee take over. With regards to the designated successor trustee, you have several choices – a family member, your attorney, a bank, each has its advantages and disadvantages. A family member would most likely be the least costly but the appointment of a family member could be a good or bad idea depending upon the family dynamics.
What happens to the assets that are not in trust when I die?
Disposition of these assets: Assets not in your trust at the time of your death are disposed of pursuant to a pour over will which is provided to you with our revocable trust form or if no such pour over will exists, the assets will be distributed pursuant to the intestate statute of the State of your residence.
