Living Trusts

What is Probate and why does everyone want to avoid it?

When a loved one passes away, his or her estate often goes through a court-managed process called probate or estate administration where the assets of the deceased are managed and distributed. If your loved one held his or her assets through a well-drafted and properly funded Living Trust, no court-managed administration may be necessary. The length of time needed to complete the probate of an estate depends on the size and complexity of the estate and the local rules and schedule of the probate court.

Every probate estate is unique, but most involve the following steps:

  • Filing of a petition with the proper probate court
  • Notice to heirs under the Will or to statutory heirs (if no Will exists)
  • Inventory and appraisal of estate assets by Executor/Administrator
  • Payment of estate debts to rightful creditors
  • Sale of estate assets
  • Payment of estate taxes, if applicable
  • Final distribution of assets to heirs

What is a Living Trust?

A Living Trust can be used to hold legal title to your assets during your lifetime and provide a mechanism to manage them. You (or you and your spouse) are the trustee(s) and beneficiaries of your trust during your lifetimes. You also designate successor trustees to carry out your instructions, upon your death or incapacity. Your Living Trust is "revocable" which allows you to make changes and even to terminate it. One of the benefits of a properly funded Living Trust is that it can minimize or prevent the need for probate and also minimize the expenses and delays associated with the settlement of your estate.

What are the advantages of having a Living Trust?

A Living Trust allows for the immediate transfer of assets after death without court interference. It also allows for the management of your affairs in case of incapacity, without the need for a guardianship or conservatorship process. With a properly funded Living Trust, there is no need to undergo a potentially expensive and time-consuming public probate process (or it can at least be lessened dramatically). In short, a well-thought out estate plan using a Living Trust can provide your loved ones with the ability to administer your estate privately, with more flexibility, and in an efficient and low-cost manner.

Will I lose any control over my property if I create a Living Trust?

Creating a revocable Living Trust and transferring your assets to the name of that trust will not affect your ability to control those assets. During your lifetime, you have complete control over all your assets, unless you become incapacitated. You may engage in any transaction as the trustee of your Trust that you could before you had a Living Trust. There are no changes in your income taxes. If you filed a 1040 before you had a trust, you continue to file a 1040 when you have a Living Trust. There are no new Tax Identification Numbers to obtain. Because a Living Trust is revocable, it can be modified at any time, or it can be completely revoked if you so desire. Upon your incapacity, your durable power of attorney comes into effect and allows your loved ones to transact on your behalf according to the instructions you have laid out in the Living Trust. Upon your passing, the Living Trust can no longer be modified and the successor trustee(s) you have designated will then proceed to implement your wishes as you directed.

Do I have to transfer all my assets to my Living Trust?

Assets with beneficiary designations such as a life insurance policies or annuites are payable directly to a named beneficiary and need not be transferred to your Living Trust. Furthermore, money from IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death accounts (POD for short) or joint accounts with rights of survivorship also pass without having to be titled into your trust. However, it is important to coordinate the appropriate beneficiary designations within your overall estate plan.

If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?

Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your Living Trust as long as you continue to live in that home. The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does not provide protection for residential real estate with more than five dwelling units. However, most individuals who do own residential property with more than five dwelling units tend to own them through a business entity and not directly in their individual names. Hence, they are not concerned with the five dwelling exception.