Living Trusts are documents that provide detailed instructions on how to manage your assets and care for your family at your incapacity and after death. Unlike a will, Living Trusts are private documents and avoid probate court. This allows you to appoint individuals or institutions to best take care of your assets and distribute your assets in a manner you deem appropriate.
How does a Living Trust function? Living Trusts are legal documents that can hold and manage assets during your lifetime, incapacity, and after your death. Living Trusts allow you to keep full control of all your assets by transferring assets to yourself as trustee of your trust. As trustee of your own trust, you continue to have the power to transfer, sell, add, or remove assets from your trust. Typically, your financial advisor, banker, and attorney can help you title assets into your trust. Most trusts hold bank accounts, real property, personal property, stock, investments, and other assets. By keeping assets in a trust, assets avoid probate court administration at incapacity and after your death. If you were to suddenly become incapacitated or pass away, your successor trustee could immediately access your assets, rather than going to the court to gain access. Therefore, your successor trustee can ensure that your family and businesses are cared for during your incapacity and after your death.
What Goes Into My Trust and What Stay Out? Most Living Trusts are funded with bank accounts, investments, businesses, and other assets. However, there are some assets (IRAs, 401(k), 403(b), etc.) are best held outside of your trust, as the assets will pass by beneficiary designation at death outside of the probate courts. Also, some real property can be transferred outside of your trust depending on the ownership and title of the property. If you set up a Living Trust, your estate planning attorney will provide detailed funding instructions that show how different types of assets should be titled and how these assets will pass onto the next generation.
Can I Change My Living Trust? Most Living Trusts created by Wakefield Law, PC are revocable which means the trust can be changed, amended or revoked by the person who set up the trust at any point before their incapacity or death. Revocable living trusts provide the flexibility to amend your plan for changes in net worth, family structure, or major life events. Once you pass away, most trusts become irrevocable which means that the trust cannot be changed and your heirs must follow the instructions found in your trust to distribute your estate.
How Long Do Assets Stay In Trust? Unlike power of attorney documents, a trust does not die when you pass away. Assets can remain in your trust until your beneficiaries reach the age(s) you want them to inherit. Your trust will be managed by a successor trustee of your choice that will oversee the investment, accounting, and distribution of your assets. Your trust can continue longer to provide for minor children, individuals with special needs, or to protect the assets from beneficiaries’ creditors, ex-spouses, and future taxes.
How Does A Living Trust Avoid Probate? When you set up a living trust, you transfer assets from your name to the name of your trust. You still have complete control over your assets but you will retitle the assets from “John and Jane Doe, husband and wife” to “John and Jane Doe, trustees under the John and Jane Doe Living Trust.” After retitling assets to your trust, legally your trust owns your property. Therefore, there is no longer any assets for the courts to control when you die or become incapacitated because all the assets are owned by the trust. Ensuring that there are no probate assets and all assets are properly titled is what keeps you and your family out of the courts.
Do I Need A Trust If I Have A Will? Yes! Contrary to what you’ve probably heard, a will may not be the best plan for you and your family. That’s primarily because a will does not avoid probate when you die. A will must be validated by the probate court before it can be enforced and cannot go into effect until after you die. Also, wills do not provide protection at incapacity and are public documents, unlike a trust. Trusts are much more effective documents at minimizing costs and administration. If you have a trust, you will still need a will but we recommend using a “pour-over” will. A “pour-over” will acts as a safety net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it back into your trust. The asset may have to go through probate first, but it can then be distributed as part of your overall living trust plan. Also, if you have minor children, a guardian will need to be named in the will.
If you have any questions about the materials above or would like to speak with an estate planning attorney, please call our office at (248) 457-9860.
*This article is meant for informational purposes only. Please recognize that nothing in this article constitutes legal or tax advice. If you have any questions, comments, or seek legal assistance, please call one of the attorneys at Wakefield Law, P.C.