Many people are intimidated by the thought of probate. It is seen as a lengthy, expensive court proceeding that individuals want to avoid. In some cases, this is an accurate description of the process. In an effort to avoid probate, more and more baby boomers are choosing to control the distribution of their assets post mortem through the use of a living trust.
There are many reasons that fuel this decision, including an increased likelihood that personal affairs remain private and the distribution of assets in a timely manner. A living trust can fulfill these goals, and serve as a valuable tool in estate planning.
Living Trust Defined
A living trust is a written document that allows the creator to direct how property is passed after death. Although similar to a will, it differs by also controlling how property is managed if the creator becomes disabled or incapacitated.
The legal document works by transferring assets, including property, bank accounts and stocks, into a trust. Each asset must be specifically included, or it will not become a part of the trust.
The trust is then administered for the creator’s benefit during the creator’s lifetime. Upon the creator’s death, the assets are transferred to the beneficiaries.
Generally, creators name themselves as trustees in charge of managing the assets while they are alive. A successor trustee is named to take over either upon the creator’s death or incapacitation. The living trust should also name the intended beneficiaries, or people who receive benefits of the trust after the grantor’s death.
Benefits of a Living Trust
Trusts can provide a wide range of benefits, including a level of privacy not present in wills. Generally, a will goes through probate. Probate is an administrative process conducted in court that becomes part of public record. A trust does not require probate to be operable. As a result, it does not become a part of the public record unless disputed. Disputes can occur and most commonly present themselves when a child is disinherited.
In addition to being public, the use of probate often takes time. This can result in a lack of access to resources for surviving loved ones to pay bills and the inability to manage existing accounts as desired. A trust generally includes language that ensures it continues to operate smoothly following death of the creator.
Trusts also allow the creator a higher level of control. For example, a trust allows the creator to determine not only who gets money, but also the way it is received. The assets are distributed based on the instructions provided within the trust documents, including the ability to provide an inheritance in either a lump sum or spread it out in payments over time. This tool also can include tax savings clauses. Such provisions can be used to reduce state and federal estate taxes.
People that own property in multiple states, like a cabin up north or a condo in a warmer climate, should also consider creating a trust. Wills that contain property in multiple states must go through probate in each jurisdiction. The use of a trust will avoid this process and save a significant amount of time.
Different Types of Living Trusts
There are two broad categories of living trusts: revocable and irrevocable. Most choose a revocable trust, which allows creators the ability to make changes during their lifetime. An irrevocable trust is set and cannot be changed, but offers greater tax advantages. Determining which provides the most advantages is difficult, and requires an analysis that is best discussed with an experienced trust attorney.
Additional variations are available. For example, a living trust can be helpful if there are children or grandchildren with special needs within the family or if there are concerns that children or other heirs will not spend their inheritance wisely. These documents can also provide a layer of protection against creditors, shielding assets from them.
Things to Consider if Using a Living Trust
Anyone using a living trust to avoid probate must make sure all assets are included in the trust. Some people use a pour over will as an extra safeguard. Essentially, this will simply assigns all assets to the living trust. This is a broad reaching document that should cover any assets that were not initially included by the creator.
Contacting a Dutchess County Estate Planning Attorney
There are many situations that benefit from a living trust and others that do not. If a trust is not the correct tool for your estate planning needs, a will may suffice. If neither is used, distribution of your property will be controlled by local laws. As a result, it is important to contact an experienced estate planning attorney in order to determine the best estate plan for your assets.