How do Trusts 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, as Trustees of the family trust. Legally, you no longer own anything (don’t panic: everything belongs to your trust). Therefore there is nothing for the court 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.
Do I lose control of the assets in my Trust?
Absolutely not. You keep full control of assets. As Trustee of your Trust, you can do anything you could before – buy/sell assets, change or even cancel your trust. You even file the same tax returns.
Does it take a lot of time?
It will take some time- but you can do it now, or you can pay the courts and attorneys to do it to your family later. One of the benefits of a Living Trusts is that all your assets are brought together under one plan.
If something happens to me, who has control?
If you and your spouse are co-trustees, either can act and have instant control if one becomes incapacitated or dies. If something happens to the both of you, or if you are the only trustee, your hand picked successor trustee – usually a family member – will step in. The Successor Trustee simply takes over the management of your trust.
What does a Successor Trustee do?
If you become incapacitated, your Successor Trustee looks after your care and manages your financial affairs for as long as needed, using your assets to pay your expenses. Also, 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.
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 more than one in case your first choice is unable to act.
Does my Trust end when I die?
Unlike a will, a Trust doesn’t 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.
How can a Living Trusts save on estate taxes?
The recent federal tax cut bill has raised the current federal exemption to $11,580,000 for an individual ($23,160,000 for a married couple), making federal inheritance taxes a non-issue for most people. However, the federal exemption is scheduled to drop to $5,000,000 in 2026, and has varied wildly from zero to the current exemption over the past decade. Since your Living Trusts is a long-term estate planning document, it’s entirely possible that estate taxes will become an issue during your lifetime.
In addition, a number of states currently have state estate taxes that are charged on inheritances in their state.
Living Trusts are specifically designed to handle estate tax issues, particularly for married couples. This is particularly important during the period beginning upon the death of the first spouse to die.
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 until after you die and the will is probated. So it does not avoid probate and provides no protection at incapacity.
Is a Living Trusts 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.
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.
If I have a Living Trusts, 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 assets and sends them 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.
Is a “living will” the same as a Living Trust?
No. A Living Trusts is for financial affairs. A living will is for medical affairs—it lets others know how you feel about life support in terminal situations.
Are Living Trusts new?
No, they’ve been used successfully for hundreds of years.
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 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 upon their incapacities or deaths.