Living Trusts

 Q:  What is Probate and why does everyone want to avoid it?
 
Probate is the court-supervised process of inventorying all of your assets after your death, paying your final bills, and then distributing what's left to your loved ones. The key here is that probate is “court-supervised.” In other words, probate is dictated by the probate laws of the state where you live at the time of your death and can tie up your property for months or even years before your family will have access to it.

To be effective, the will must be probated at your death. It is a lengthy, costly and burdensome process consisting of appointment of a representative, liquidation of assets, intervention from the Court and the issuing of Letters Testamentary. In order to avoid this process of probate, you can either make sure all assets are titled in such a way that they automatically pass to someone at the time of death, which can sometimes lead to other problems, or you might consider creating a trust which is considered a will substitute.


 Q:  What is a Living Trust?

A living trust is an agreement that you make with someone you trust called a trustee. It is set up during your lifetime and you transfer most or all of your assets into it. You have the right to receive the income from the trust assets and you may withdraw a portion or all of the principal of the trust whenever you wish. A trust can accomplish a number of things. It allows a trustee to manage your trust assets upon incapacity, it enables the trust assets to pass automatically to the trust beneficiaries without the need for a probate proceeding and in some cases, a trust can be used to protect your assets in the event you need Medicaid to pay for long term care.


 Q:  What are the advantages of having a Living Trust?

One of the most valuable benefits is that the trust sets up a blueprint for handling your affairs if you become incapacitated. Your successor trustee (or co-trustee, if you named one) can take over for you. Trusts allow great flexibility in carrying out your wishes. For instance, you can specify in the trust exactly how you would like your money to be spent, right down to what kind of nursing facility you would want to be in.  Establishing Trust can be especially useful in avoiding expensive multiple probate proceedings. Assets named in trust avoid the costly courts and typically take precedence over the property designated in your will.

In addition, actions by trustees may be accepted more readily by some financial institutions than actions by agents under durable powers of attorney. Some financial institutions honor only their own durable powers of attorney forms, for example, so always check their requirements.
Revocable living trusts generally are private documents, whereas wills become public record when filed in the courthouse. However, in some cases, the trust may have to be filed as well, perhaps when you transfer real estate to the trust. If you own real estate, such as a vacation home, in another state, transferring it to a revocable living trust avoids having to probate it in that state.


 Q:  Will I lose any control over my property if I create a Living Trust?
 
If you create a revocable Living Trust and transfer your assets into the name of that trust, it will not affect your ability to control those assets.  If you have a revocable Living Trust, as long as you are mentally competent, you can transfer property in and out of it whenever you want and you do not need anyone else's permission. You may engage in any transaction as the trustee of your Trust that you could before you had a Living Trust. However, if you have a shared trust, you may need to get your co-trustee's consent if you're transferring property you own together.  
 
Because a Living Trust is revocable, as long as you are mentally competent, it can be modified at any time or it can be completely revoked during your lifetime. Upon your incapacity, if you have a valid durable power of attorney in place, your loved ones will be able to act on your behalf according to the instructions laid out in your Living Trust. Upon your passing, the Living Trust can no longer be modified and the successor trustee(s) will then proceed to implement your wishes as directed in your Living Trust, such as the transfer of your assets to your beneficiaries. 

 Q:  Do I have to transfer all my assets to my Living Trust?

It in not necessary to transfer assets into your Living Trust that have beneficiary designations, such as life insurance policies or annuities, which are payable directly to a named beneficiary.   In addition, proceeds from IRAs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account (POD for short) or an "in trust for" account with a named beneficiary also pass to that beneficiary without having to be titled into your trust.  However, you should seek the advice of an experienced attorney who is familiar with the intricate regulations of retirement accounts that can help you coordinate the appropriate beneficiary designations with your overall estate plan.

 Q:  If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?

As long as you continue to live in your home, Federal law prohibits financial institutions from calling or accelerating your loan when you transfer the home to your Living Trust.  The only exception to the federal law is that it does not provide protection for residential real estate with more than five dwelling units.  With that said, however, in our experience we find that most clients who do own residential property with more than five dwelling units tend to own them through a business entity and not directly in their individual names and hence are not concerned with the five dwelling exception.