|
How You Can Avoid Probate, Save Taxes
and More
1. I have a will. Why
would I want a living trust?
2. What is probate?
3. What's so bad about probate?
4. Doesn't joint ownership avoid probate?
5. Why would the court get involved at
incapacity?
6. Does a durable power of attorney
prevent the court's involvement at incapacity?
7. What is a living trust?
8. How does a living trust avoid probate
and prevent court control of assets at incapacity?
9. Do I lose control of the assets in my
trust?
10. Is it hard to transfer assets into
my trust?
11. Doesn't this take a lot of time?
12. Should I consider a corporate
trustee?
13. If something happens to me, who has
control?
14. What does a successor trustee do?
15. Who can be successor trustees?
16. Does my trust end when I die?
17. How can a living trust save on
estate taxes?
18. Doesn't a trust in a will do the
same thing?
19. Is a living trust expensive?
20. How long does it take to get a
living trust?
21. Should I have an attorney do my
trust?
22. If I have a living trust, do I still
need a will?
23. Is a "living will" the same as a
living trust?
24. Are living trusts new?
25. Who should have a living trust?
26. Summary of Living Trust Benefits
1. I have a will. Why would I want
a living trust?
Contrary to what you've probably heard, a will may not
be the best plan for you and your family--primarily
because a will does not avoid probate when you die. A
will must be verified by the probate court before it can
be enforced.
Also, because a will can only go into effect
after you die, it provides no protection if you become
physically or mentally incapacitated. So the court could
easily take control of your assets before you die--a
concern of millions of older Americans and their
families.
Fortunately, there is a simple and proven
alternative to a will--the revocable living trust. It
avoids probate, and lets you keep control of your assets
while you are living--even if you become
incapacitated--and after you die.
(Back to Top)
2. What is probate?
Probate is the legal process through which the court
sees that when you die, your debts are paid and your
assets are distributed according to your will. If you
don't have a valid will, your assets are distributed
according to state law.
(Back to Top)
3. What
about probate?
It can be expensive. Legal/executor fees and other costs
must be paid before your assets can be fully distributed
to your heirs. If you own property in other states, your
family could face multiple probates, each one according
to the laws in that state. Because these costs can vary
widely, be sure to get an estimate.
It takes time, usually 9 months to a year or
more. During part of this time, assets are usually
frozen so an accurate inventory can be taken. Nothing
can be distributed or sold without court and/or executor
approval. If your family needs money to live on, they
must request a living allowance.
Your family has no privacy. Probate is a public
process, so any "interested party" can see what you
owned and who you owed. The process "invites"
disgruntled heirs to contest your will and can expose
your family to unscrupulous solicitors.
Your family has no control. The probate process
determines how much it will cost, how long it will take,
and what information is made public.
(Back to Top)
4. Doesn't joint ownership avoid
probate?
Not really – it usually just postpones it. With most
jointly owned assets, when one owner dies, full
ownership does transfer to the surviving owner without
probate. But if that owner dies without adding a new
joint owner, or if both owners die at the same time, the
asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner,
you lose control. Your chances of being named in a
lawsuit and of losing the asset to a creditor are
increased. There could be gift and/or income tax
problems. And since a will does not control most jointly
owned assets, you could unintentionally disinherit your
family.
With some assets, especially real estate, all
owners must sign to sell or refinance. So if a co-owner
becomes incapacitated, you could find yourself with a
new "co-owner" -- the court--even if the ill owner is
your spouse.
(Back to Top)
5. Why
would the court get involved at incapacity?
If you can't conduct business due to mental or physical
incapacity (Alzheimer's, stroke, heart attack, serious
accident or illness, etc.), only a court appointee can
sign for you – even if you have a will. (Remember, a
will only goes into effect after you die.)
Once the court gets involved, it usually stays
involved until you recover or die. The court, not your
family, controls how your assets are used to care for
you. This public process can be expensive, embarrassing,
annoying, time consuming and difficult to end if you
recover. And it does not replace probate at death – your
family could have to go through the court system twice.
(Back to Top)
6. Does a durable power of attorney
prevent the court's involvement at incapacity?
A durable power of attorney lets you name someone to
manage your financial affairs if you are unable to do
so. However, many financial institutions won’t honor one
unless it's on their form. And, if accepted, it may work
too well -- giving someone a "blank check" to do
whatever he/she wants with your assets. It can be very
effective when used with a living trust, but risky when
used alone.
(Back to Top)
7. What
is a living trust?
A living trust is a legal document that, just like a
will, contains your instructions for what you want to
happen to your assets when you die. But, unlike a will,
a living trust avoids probate at death, can control all
of your assets, and prevents the court from controlling
your assets during incapacity.
(Back to Top)
8. How
does a living trust avoid probate and prevent
court control of assets at incapacity?
When you set up a living trust, you transfer assets from
your name to the name of your trust, which you control
-- such as from "Bob and Sue Smith, husband and wife" to
"Bob and Sue Smith, trustees under trust dated (date of
trust)."
Legally you no longer own anything (don't
panic: everything now belongs to your trust), so there
is nothing for the courts to control when you die or
become incapacitated. The concept is very simple, but
this is what keeps you and your family out of the
courts.
(Back to Top)
9. Do I
lose control of the assets in my trust?
Absolutely not. You keep full control. As trustee of
your trust, you can do anything you could do before --
buy/sell assets, change or even cancel your trust
(that's why it's called a revocable living trust). You
even file the same tax returns. Nothing changes but the
names on the titles.
(Back to Top)
10. Is
it hard to transfer assets into my trust?
No, and your attorney, trust officer, financial adviser
and insurance agent can help. You need to change titles
on real estate (in- and out-of-state) and other titled
assets (stocks, CDs, bank accounts, other investments,
insurance, etc.). Most living trusts also hold your
jewelry, clothes, art, furniture, and other assets that
do not have titles.
Also, beneficiary designations on some assets
(like insurance) should be changed to your trust so the
court can't control them if a beneficiary is
incapacitated or no longer living when you die. (IRA,
401(k), etc. can be exceptions.)
(Back to Top)
11.
Doesn't this take a lot of time?
It will take some time -- but you can do it yourself
now, very efficiently, or you can pay the courts and
attorneys to do it for you later, likely at a greater
cost. One of the benefits of a living trust is that all
your assets are brought together under one plan.
Properly "funding" your trust protects the assets that
have been transferred into it.
(Back to Top)
12.
Should I consider a corporate trustee?
You may decide to be the trustee of your trust. However,
some people select a corporate trustee (bank or trust
company) to act as trustee or co-trustee now, especially
if they don't have the time, ability or desire to manage
their trusts, or if one or both spouses are ill.
Corporate trustees are experienced investment managers
that are objective and reliable, and their fees are
usually reasonable.
(Back to Top)
13. If
something happens to me, who has control?
If you and your spouse are co-trustees, either of you
can act and have instant control if one of you becomes
incapacitated or dies. If something happens to both of
you, or if you are the only trustee, your handpicked
successor trustee will step in. If a corporate trustee
is already your trustee or co-trustee, they will
continue to manage your trust for you.
(Back to Top)
14.
What does a successor trustee do?
If you become incapacitated, your successor trustee
looks after your care and manages your financial affairs
for your benefit as long as needed, using your assets to
pay your expenses. If you recover, you automatically
resume control. When you die, your successor trustee
pays your debts and distributes your assets. All this is
done quickly and privately, according to instructions in
your trust, without court interference.
(Back to Top)
15. Who
can be successor trustees?
Successor trustees can be individuals (adult children,
other relatives, or trusted friends) and/or a corporate
trustee. If you choose an individual, you should name
several in succession in case your first choice is
unable to act.
(Back to Top)
16.
Does my trust end when I die?
Unlike a will, a trust doesn't have to die with you.
Assets can stay in your trust, managed by the person or
corporate trustee you have chosen – until your
beneficiaries (including minor children) reach the
age(s) you want them to inherit, or to provide for a
loved one with special needs.
(Back to Top)
17. How can a living trust save on
estate taxes?
If you die in 2003 and the net value of your estate
(assets less debts) is more than $1,000,000 ($1.5
million in 2004), federal estate taxes (starting at 41%)
must be paid. If you are married, your living trust can
include a provision that will let you and your spouse
leave up to $2 million estate tax-free to your loved
ones, saving $435,000 ($3 million in 2004).
(Back to Top)
18.
Doesn't a trust in a will do the same thing?
Not quite. A will can contain wording to create a
testamentary trust to save estate taxes, care for
minors, etc. But, because it's part of your will, this
trust cannot go into effect after you die until the will
is probated. So it does not avoid probate and provides
no protection at incapacity.
(Back to Top)
19. Is
a living trust expensive?
Not when compared to all the costs of court interference
at incapacity and death. How much you pay will depend on
how complicated your plan is. Be sure to get an
estimate.
(Back to Top)
20. How long does it take to get a
living trust?
It should only take a few weeks to prepare the legal
documents after you make the basic decisions.
(Back to Top)
21. Should I have an
attorney do my trust?
Yes, but you need the right attorney. A local attorney
who has considerable experience in living trusts will be
able to give you valuable guidance and peace of mind
that your trust is prepared properly. In some states,
qualified paralegals can now also prepare trust
documents; however, they cannot give you legal advice.
(Back to Top)
22. If
I have a living trust, do I still need a will?
Yes, you need a "pour-over" will that 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 into your trust. The asset may have to go
through probate first, but it can then be distributed as
part of your living trust plan.
(Back to Top)
23. Is
a "living will" the same as a living trust?
No. A living trust is for financial affairs. A living
will is for medical affairs—it lets others know how you
feel about life support in terminal situations.
(Back to Top)
24. Are
living trusts new?
No, they've been used successfully for hundreds of
years.
(Back to Top)
25. Who should have a
living trust?
Age, marital status and wealth don't really matter. If
you own titled assets and want your loved ones (spouse,
children or parents) to avoid court interference at your
death or incapacity, consider a living trust. You may
also want to encourage other family members to have one
so you won't have to deal with the courts at their
incapacities or deaths.
(Back to Top)
26.
Summary of Living Trust Benefits:
• Avoids probate at death, including multiple probates
if you own property in other states.
• Prevents court control of assets at incapacity.
• Brings all your assets together under one plan.
• Provides maximum privacy.
• Quicker distribution of assets to beneficiaries.
• Assets can remain in trust until you want
beneficiaries to inherit.
• Can reduce or eliminate estate taxes.
• Inexpensive, easy to set up and maintain.
• Can be changed or cancelled at any time.
• Difficult to contest.
• Prevents court control of minors' inheritances.
• Can protect dependents with special needs.
• Prevents unintentional disinheriting and other
problems of joint ownership.
• Professional management with corporate trustee.
• Peace of mind.
(Back to Top)
NOTE: This information is designed to
provide a general overview with regard to the
subject matter covered and is not state-specific.
The authors, publisher and host are not providing
legal, accounting or any other advice which
purports to be specific to your situation. The
contents of this website are believed to be
completely reliable. Nevertheless, some material
may be affected by changes in the laws or
interpretations of such changes since the material
was entered on the website. If legal advice or
other expert guidance is required, the services of
a competent professional in the field of law,
accounting, insurance or investments should be
sought.
Price
& Farrington, PLLC - Attorneys and Counselors at
Law
Parkwood Office Center - 2370 130th Ave. N.E., Suite
103 - Bellevue, WA 98005
Phone: 425.451.3583.. Fax:
425.522.4818 ..E-mail: admin@pricefarrington.com
About
Us l What We
Provide l Contact Us
l Articles l Forms l F.A.Q.
l Links l "FastFacts" l Sitemap l Home
|
