When it comes to estate planning, most people assume that as long as they have a will, they’re set. However, a revocable living trust may be a better alternative. A trust is property held by one individual for the benefit of another, and a revocable living trust is simply a trust created during an individual’s lifetime that they can change at any point before they die.
Though compared with a will, a trust may seem like a strange and unfamiliar option, but it can potentially facilitate the process of putting your affairs in order.
- be aware of probate
- create a pour-over will
- consider a trust if you have minor children
- consider a trust if you fear becoming incapacitated
- be aware of will contests when estate planning
- forget to retitle out-of-state property
- use a trust to protect your property from creditors
- set up a trust without speaking to an attorney
- set up a trust if you cannot afford it
Probate is the legal process of dealing with a deceased person’s estate. It can involve finding an Executor for the estate if no will was written, challenging an invalid will, or deciding who should get what property. Though probate is a normal part of the legal system, it’s a procedure that many would rather avoid, especially at a time when they’re grieving for a loved one. Probate can drag on for years, racking up attorney’s fees in the process. In addition, it’s also a public process; if privacy matters to you, probate is something you’ll want to sidestep.
If property is put into a living trust, however, it does not go into probate because you have already re-titled the property and clearly spelled out how your assets will be distributed. When you think about putting your affairs in order, don’t forget to consider this issue. If avoiding probate is a priority, a trust may be right for you.
If you are not planning to transfer everything you own into your living trust, or if you simply forget to do so make sure you have a pour-over will. This kind of will is often used with a living trust. The advantage is the trust and the pour-over will work in concert—everything is controlled by one document. The way it works is that upon death the pour-over transfers all of your property to the trust so that it can be distributed to the trust beneficiaries you named while your were alive.
Though you may rely primarily on the revocable living trust, be prudent: make sure it is created with a pour-over will in order to safeguard any property outside of the trust. Without a pour-over will, the courts will have to intervene to decide what happens to the the property that was not transferred to the trust during your lifetime.
Children under the age of 18 cannot legally inherit property. Without a trust, the courts will appoint a guardian to manage property that you wish to pass on to them. However, they may choose someone whom you dislike or who doesn’t have your child’s best interests at heart. By putting your property into a trust, you have more control over your children’s future because you can choose the trustee and designate terms and conditions.
A trust may also be the answer if you wish to pass your property on to someone who is an adult but unable to manage their own property due to drug addiction or mental incapacity, for example.
What if you become too ill or frail to manage your own estate? A trust allows a trustee of your choosing to govern your affairs if you become incapacitated. Setting up a trust in advance will make this transition as smooth as possible.
For example, if you fail to plan in advance and you become incapacitated, a guardian will be appointed for you. Others opt to put properties, such as a checking or savings account, in a child’s name to give them financial control but this is a fairly limited option. Often, the best choice is a trust because as soon as you become incapacitated, a trustee can easily take over.
Disgruntled relatives who are upset at being disinherited may arise to contest your will. Because challenging a living trust is a far more difficult procedure, you may want to go with this option over a will if you fear disinherited relatives disputing your wishes.
Contesting a will costs the objector almost nothing, slows down the process of settling the estate, and prevents rightful beneficiaries from inheriting right away. Perhaps worst of all, even if the contest is unsuccessful, it will result in attorney’s fees that will come out of the estate.
Challenging a living trust, on the other hand, is far more complicated: a contest must be heard in civil court, which involves filing fees and procedures.
If you live in one state but also own property in another, a trust is a smart way to ensure that that property is taken care of. However, you must remember to re-title your out-of-state property in the name of the trust, or risk dealing with probate in that particular state.
For example, your primary residence may be New York, but you may also own a house in Florida. If you neglect to re-title your second home, your decedents will be stuck hiring lawyers in Florida, accruing legal fees, and spending time away from home during a period of mourning. This is a potentially lengthy and expensive mistake that is easily remedied, so take care to include out-of-state property in your trust.
If you have numerous debts, you may be tempted to rely on a living trust to get around repaying them. However, a living trust is not a way to avoid creditors who might reclaim your property. With a revocable living trust, because you are still the owner of your property, creditors can still access it.
After your death, creditors may still be able to file a claim against the trust. In other words, though a living trust does give you freedom over your property, there are still some things that you can’t protect it from.
While it may seem enticing to save on attorney’s fees by setting up a trust on your own may, this is a dangerous move. In the long run, a poorly or incorrectly drafted trust will hurt you far more than spending money on lawyer’s fees ever will. Though many opt to use online templates or kits that claim to have been set up by a lawyer, beware. A living trust is a custom-made document that takes into account a variety of factors particular to your circumstances.
Your best option is to talk to an estate planning lawyer who can answer specific questions and who can anticipate issues you may not even have thought of. For example, an attorney may be able to help protect your assets against federal and state estate taxes through tax savings clauses.
Setting up a living trust isn’t inexpensive. Though fees range, depending on a variety of factors, they are usually in the area of several thousand dollars. If your estate isn’t that large, it may not be worthwhile to set up a trust. Some believe that an estate should be valued at $100,000 for a trust to be useful; others would suggest a trust even for an estate valued at $20,000. Because setting up a trust isn’t free, make sure that this is truly a worthy investment.
Whether you decide to go with a will or a living trust, this is not a decision you should put off or take lightly. If you die without planning for your decedents, your options will be severely limited because the courts will decide which of your relations will inherit your property. Though you may have told your loved ones of your plans, without a trust or a will, there is no way to legally uphold your wishes.
Be sure to talk to an attorney and consider your choices as soon as possible.
Though setting up a living trust may seem complicated compared with a will, ultimately it may provide you and your loved ones with more options when it comes to planning for the future. Because estate planning is fraught with legal—and emotional—issues, it’s imperative that you talk to an attorney to make sure you make the right choice when it comes to putting your affairs in order.