An Overview of Living Trusts
A living trust is an estate-planning instrument that was designed to avoid probate if you die. You may have heard about living trusts but wonder what the advantages are and whether you should implement one in your estate plan. Those are valid questions.
Here is a summary of five benefits of a living trust, along with some tips to help you determine if the entity is right for your estate planning needs.
A living trust, more precisely a revocable living trust, is a legal document that holds your assets—investments, bank accounts, real estate, vehicles, and other valuable personal property—in trust for your benefit during your lifetime and specifies how you want these assets to be distributed upon your death. Since it is revocable, you may cancel or modify it at any moment if your circumstances change.
You appoint yourself as trustee (spouses, a bank, or other persons may also serve as co-trustees) and retain total control over your assets, transferring them in and out of the trust as you like. One distinction from a will is that you also designate a successor trustee,’ who will act as your representative following your death and distribute your assets according to your preferences.
Moreover, if you become incompetent, your successor trustee will act on your behalf, taking care of financial matters and even managing your property or company assets. It’s all set out plainly and, unlike a will, maybe managed without the assistance of the courts.
Consult a reliable Houston estate planning attorney at Luis F. Hess PLLC if you need answers to some common living trust questions.
What Advantages Do Living Trusts Offer?
Advantages in general
As previously stated, the Living Trust envisions you as the first trustee with complete authority to manage, invest, and dispose of the trust assets in the same manner as if you continued to hold them entirely in your name.
This approach avoids corporate trustee fees and other costs throughout the time you operate as a trustee.
Additionally, since you are both trustee and first beneficiary, you are assured total privacy and secrecy about the nature and amount of the trust assets.
Contingency Plans in the Event of Your Disability
A Living Trust also allows the person or business selected as successor trustee to handle the trust’s assets if you become ill, unqualified, or otherwise unable to do so. You can make income and principal distributions to yourself, for your own benefit, to support, maintain, or improve your health. It may also address your dependents’ needs.
A court-appointed conservator/guardian must manage your finances. A properly written Living Trust provides for automatic succession of the new trustee in the event of your impairment.
The document should also enable a non-judicial evaluation of a trustee’s competency. For example, the instrument may demand that such a decision be made by a regular physician.
This method’s privacy protections and ability to choose the decision-maker are definitely better than a public court hearing.
Joint Tenancy Holdings
Because a trust is not a natural or legal person, it cannot have joint tenancy ownership to assets. Co-tenancy arrangements are often established to provide one individual access to the property for the benefit of the other joint tenant.
However, the same sort of “convenience” access may be achieved by a properly constructed trust instrument authorizing the trustee to designate “attorneys-in-fact” under a power of attorney.
Avoiding a Probate Proceeding Following Your Death
Depending on how the Living Trust is funded, it may be possible to reduce the total value of assets exposed to probate or perhaps avoid probate altogether.
No probate is required if the entire value of your assets is less than $100,000.00. A smaller probate estate may also result in lower attorney and executor fees, as well as fewer probate delays.
Assume you own real estate in a state other than your home. So the Living Trust can escape probate (or “ancillary proceedings”) in the state where the property is located.
Making a trust for your real estate assets should be sufficient to transfer them after your death without the need for an auxiliary procedure.
As previously stated, coordinated tax clauses in the Living Trust and “pour-over” will enable payment of death taxes from the most convenient “pocket”.
In contrast, they are ensuring that the tax-exempt status of insurance and qualified employee benefit plan proceeds is not jeopardized inadvertently by their use to pay death taxes.
Things to be Aware Of about Living Trusts
1. What is a revocable living trust, and how does it differ from a testamentary trust?
A revocable living trust is a complex document that names someone to handle your possessions after your death. A living trust is derived from the fact that it is organized while the grantor is still alive. It is “revocable” in the sense that, as long as you are mentally competent, you may amend or dissolve the trust at any moment and for any reason.
Generally, a living trust becomes irreversible (unchangeable) at your death.
A trust comprises the creator, the trustee, or trustees who agree to administer the trust’s assets by the trust’s conditions and the beneficiaries.
You’ll almost certainly want to designate yourself and your spouse as trustees since you’ll want complete control of the property throughout your lifetime. As trustee, you will have the authority to manage and dispose of your assets—sell, trade, invest or otherwise dispose of them.
2. How is a living trust different from a will?
A will or a living trust specifies who receives what, when, and how they receive it. Individuals concerned about privacy and avoiding probate may choose a trust. A living trust isn’t a public record until a trustee or beneficiary petitions the court for permission of accounts. The public has perpetual access to probate records.
3. What if I am missing one of them?
If you do not leave legal estate instructions, your property will normally be distributed to your spouse or closest heirs, which may not be what you desire. Additionally, the state may choose someone you would not trust to oversee your property distribution or serve as the legal guardian of your young children.
4. What are the benefits of a revocable living trust?
A living trust may offer you the peace of mind that comes with knowing that your assets and heirs will be safeguarded if you become unable to manage your financial affairs due to an unforeseen medical condition.
It avoids the requirement for your estate to be probated before being distributed to your heirs. When properly drafted, a trust may also be used in place of powers of attorney.
Your trust may be designed so that it distributes your assets immediately upon your death to your loved ones or a qualifying charity, or it can be written in such a way that they are distributed over time and in quantities specified by you.
Your Houston estate planning attorney may assist you by inserting tax-saving provisions in your will that may help you save money on state and federal estate taxes.
Why do I require Attorney Luis F. Hess Law Firm’s services?
Attorney Luis F. Hess will explain the advantages of a Trust compared to other methods like joint tenancy, community property, or outright ownership. It is important to understand that these other methods may be more efficient in terms of estate taxes.
However, the disadvantages of these methods include no control over how your assets are distributed after your death and no way to avoid probate. Moreover, if you outlive your spouse, this will be another disadvantage that will remain with you.
Trusts can be a good solution for some people and not a good solution for others. If you have a small estate and no children from a previous marriage, then trust will not be necessary for you. Attorney Luis F. Hess will also analyze whether or not going through probate will be an unnecessary hassle or process.
In some instances, this can make more sense for you to go through probate rather than set up a trust since it can save on administration costs and attorney fees.
In the end, you must understand your family’s needs and your wishes before setting up any legal documents or taking any steps towards planning your estate.
A living trust can help keep your family protected.
Overall, living trusts offer numerous advantages as an estate planning tool to keep your family protected. However, some may not be as advantageous as others.
Always discuss your situation with an estate planning professional before deciding if a living trust is the right option for you. So give some serious consideration to scheduling a consultation with an attorney so that you can make informed decisions on your estate.