You’ve worked hard all of your life, raised a beautiful family, and would like to pass along your good fortune to children, family and friends. To ensure your beneficiaries don’t pay exorbitant probate fees or wait months, sometimes years, to receive funds from your estate, consider creating a living trust.
If you want your assets to avoid probate, a living trust (also known as a “revocable trust”) is an effective tool in your estate planning. A living trust is an alternative to a last will. Similar to a will’s purpose, a living trust directs the distribution of your property upon passing. A living trust can be modified or revoked at any time. However, unlike a will, a living trust provides a management component to your property. Management can be performed by you, or anyone else you designate; most importantly, with a living trust you contain complete control over the property.
A living trust places assets and property “in trust” during your life. These assets can usually be distributed to beneficiaries without the complications of going through probate, also referred to as estate administration. When assets are placed in a trust you no longer “own” them; but rather the trust itself owns the assets. As your living trust legally holds title to the assets, they are not considered part of your estate; consequently, these assets are not distributed by the probate court. At the time of death, the successor trustee, effectively the executor, can begin distributing assets according to the terms of the trust.
The executor of your trust is responsible for managing the trust and its assets. Rather than guiding your estate through probate, a trustee manages the trust until the assets can be distributed to your beneficiaries. When you create a living trust, it’s also common to make a “pour-over will.” A pour-over will enables the transfer of assets into the trust if you forgot or weren’t able to move these assets into the trust before you pass away. These assets are subject to probate; however, the pour-over will does provide some privacy.
Last Will and Testament
In some instances a last will and testament could better fit your needs. A will provides a straightforward estate planning document. With a well-crafted will, not all of your assets have to pass through the probate process. In fact, many of your valued assets allow you to name beneficiaries. Such assets can include your bank accounts, retirement plans and investments. You can also name beneficiaries to Payable-on-Death (POD) accounts, such as life insurance policies, pension plans, 401(k) plans, IRA accounts, and more.
If you purchased property jointly with a spouse or significant other, the property can pass automatically to your partner without going through probate. Make sure the property is designated as jointly held.
Designations to consider include “tenancy by the entirety” and Community Property. A tenancy by the entirety enables spouses to jointly own property as a single legal entity. Several U.S. states recognize Community Property with a Right of Survivorship. Essentially when one spouse passes the property automatically passes to their surviving spouse.
Benefits of a Living Trust
Both living trusts and last wills are used to distribute property to your beneficiaries, however there are strategic reasons to utilizing a living trust. A living trust is not registered with a court; as such, it eliminates the probate court’s involvement in property distribution. The estate’s details remain private. Additionally, a will in probate can take years to process; whereas a living trust provides a smooth legal transfer of assets to your beneficiaries.
In addition to the ease of transferring assets under a living will, the cost of probating a will can be expensive. During probate, court fees taken from the gross estate can be as high as ten percent of the total estate. Gross estate is calculated as the entire estate before any debts are paid. A living trust will enable your beneficiaries to avoid this cost. Not to mention hourly legal fees too!
By drafting a living trust you may be able to avoid probate. HereToday is not a law firm, please consult an estate planning attorney to ensure a properly crafted trust.