We often discuss the value of living trusts with clients who come in for personal consultations. They typically have many of the same questions, so we have a good understanding of the impressions that many people have about living trusts.
In this blog post, we will share a hypothetical conversation between a client and a living trust attorney in an effort to shed some light on the subject.
Aren’t living trusts only for very wealthy families?
A lot of people are under the impression that this is true, but revocable living trusts can be the right choice for a wide range of different individuals. You do not have to be a millionaire to benefit from the creation of a living trust.
Why is a living trust better than a will?
There are a number of advantages that you would gain if you use a living trust instead of a will. One of them is the avoidance of the probate process. When a will is used, it must be admitted to probate by the executor. No inheritances would be distributed while the estate was being probated by the court, and it would take about eight months at minimum.
Probate expenses can be considerable, and the red ink reduces the amount of the estate before it is distributed to the heirs. Privacy is lost as well, because probate records are available to the general public.
When a living trust is used, the assets that have been conveyed into it can be distributed to the beneficiaries by the trustee outside of the process of probate.
Will I lose control of assets that I sign over to a living trust?
Remember, this is a revocable living trust. That word “revocable” says it all. If you ever decide that you want to revoke the trust and take back direct personal possession of the property that you conveyed into it, you can do so.
This is one aspect of the ongoing control, but there is more. When you establish the trust, you can act as the trustee and the beneficiary while you are alive. You are completely in charge of the trust in every way.
If you ever want to take assets out of the trust, you have that freedom. On the other side of the equation, if you want to place assets into the trust after it has been created and funded, this is a simple process. You also have the ability to change the beneficiary or trustee designations at any time.
Who administers the living trust if I become incapacitated?
This is one of the very effective things about living trusts. Many elders become unable to make sound decisions at some point in time, with Alzheimer’s disease being the biggest culprit.
When you establish a living trust, you can name a disability trustee who would be empowered to administer the trust if you ever lose the ability to handle your own financial affairs.
What if I don’t know anyone who is qualified to act as the trustee after I die?
This is a very good question, and even if you do know someone who could handle the tasks, you may want to go in a different direction. There are fiduciaries like banks and trust companies that will take on trust administration duties for a fee. It can be well worth it, because there are many advantages to be gained if you use a professional to manage the assets in the trust.
Do I have to instruct the trustee to distribute lump sum inheritances to the beneficiaries?
One of the main reasons why many people decide to use living trusts is because you do not have to go this route. If you have someone on your inheritance list who is not great at handling money, you can include spendthrift protections in the trust declaration.
For example, let’s say that there are income producing assets in the trust. You could instruct the trustee to calculate the anticipated annual interest accrual and distribute it to the beneficiary incrementally each month.
If you want to, you could create a set monthly dollar amount that you want the beneficiary to receive that includes adding some of the principal. The point is, you can have the trustee distribute the assets in any manner that you choose.
Attend a Free Estate Planning Workshop!
Our firm is holding a number of workshops over the coming weeks, and you can learn a lot if you attend one of the sessions. To see the schedule and obtain registration information, visit this page: Free Estate Planning Workshops.