A basic estate plan includes a Will which deals with your property and allows you to nominate guardians for minor children. It also includes a Living Will and Patient Advocate Designation and a Durable Power of Attorney, both of which allow someone to manage your financial affairs and make medical decisions, respectively, in case you are unable to. So why would you need a Living Trust? It all depends on your assets, your family circumstances, the values of your assets, and your wishes as to how your assets are distributed after your death. I truly could not cover all the possible reasons you need a Living Trust or the nuances of Living Trusts here unless I were writing a book, but here are some basic reasons:
TRUSTS HELP KEEP YOUR ASSETS OUT OF PROBATE ADMINISTRATION
With a Living Trust, you can bypass the time and expense of probate. Probate is the process by which your assets are valued and transferred to your heirs by the Probate Court. Fortunately, not all of your assets have to go through probate – only assets that are titled in your name alone and have no beneficiary have to go through probate. This includes real estate, bank accounts, personal property, stocks and bonds, and debts owed to you, for example. Probate assets do NOT include jointly owned property, retirement accounts (that have proper beneficiary designations), payable-on-death accounts, or trusts that are not established under your Will, for example.
Going through probate is not necessarily always a terrible thing – for example, if your probate estate is valued at $22,000 or less, your estate would be a “small estate” and qualify to go through a simplified, informal probate process without much Probate Court involvement.
The fees involved in probate administration will include court fees, administration fees, and legal fees. After your probate assets are “inventoried”, there is a graduated Inventory Fee that the Probate Court will collect based on the gross value of all assets as of the date of death.
If you set up a Revocable Living Trust, then assuming you properly “fund” your assets into the Trust, those assets will be kept out of probate. In other words, once you sign your Revocable Living Trust, that’s not the end of it – you have to then transfer your assets (“fund”) into the name of the Trust; otherwise it is useless. So for example, if you own a house in your own name, you would need a new Deed transferring the house into the name of the Trust. If I draft the Trust for you, I will certainly provide written instructions on how to fund all of your assets into the Trust.
If you die with a only a Will and no Trust, your Personal Representative has to file it with the Probate Court to begin the process of probate administration and that Will becomes part of the public record. Most people don’t want their financial affairs or family information aired out like dirty laundry!
CONTROL OVER DISTRIBUTIONS – ADD “STRINGS FROM THE GRAVE”
Let’s say you have minor children and a life insurance policy. You name the Trust as the beneficiary of the life insurance policy. After you and your spouse pass away, the Trust will allow you to set forth exactly how you would want to the policy proceeds to be managed and spent for your minor children. Or you could spell out incentives for your children or grandchildren to attend college such as providing for specific amounts being distributed to them upon graduation from college or even attending a specific type of institution. This is only scratching the surface. Overall, a Trust gives you more control and more say in how you want your assets managed for your beneficiaries while keeping those assets out of Probate Court administration. You can make it as simple or complex as you’d like it to be.
BENEFICIARIES WITH SPECIAL NEEDS OR CREDITOR ISSUES
Another common reason to have a Trust is to provide ongoing financial support for a child or other loved one who may never be able to manage the assets themselves such as a Special Needs Trust. Providing the inheritance to them directly can also disqualify them from receiving some forms of government support. Or let’s say you have a child who is a “spendthrift” (i.e., a child who does not know how to spend money wisely), you would likely want to maintain control over his or her inheritance.
ESTATE TAX SAVINGS
If the value of your estate exceeds the current estate tax exemption amount (i.e., $5.49 million for individuals and almost $10.98 million for married couples), you will absolutely want a a trust with special tax planning provisions to help shield as much from the federal estate and gift tax.
IF I DECIDE TO SET UP A TRUST, WHY DO I STILL NEED A WILL?
Even if you do try to transfer everything you can to your Trust, there’s always the chance you’ll acquire additional property during your life before you die and forget to the transfer that to your Trust. That’s when a pour-over Will comes into place – it is essentially a very bare-bones document telling the Probate Court that you intended any probate assets be transferred to the Trust and be administered and distributed according to the terms of the Trust.
Think of the Trust as a bucket – you want to put almost all over your assets in the bucket. The pour-over Will is a catching basin – a back-up — to capture whatever assets that were inadvertently missed and not re-titled into the name of your Trust, which sometimes happens if you acquire new assets after you’ve signed your Trust. It will generally state that you intend for any of your probate assets to be transferred – or poured over – to your Trust and the Probate Court won’t try to distribute the assets in a different way.
Lastly, a Will can do some things that a Trust cannot – for example, as I’ve said before, you can name the guardians for your minor children in your Will.
I STILL CAN’T DECIDE IF I NEED A TRUST.
Let me help you decide. Once you fill out a client information worksheet, which includes an asset information spreadsheet, I should be able to get the “big picture” of your family circumstances and your assets and make recommendations.