A lot of people setup a living trust to avoid the probate process. This type of estate planning method involves transferring ownership of possessions to the trust which is managed by a Trustee.
The Trustee of a living trust is the person who owns the property. They are also referred to as the Grantor. Transferring property to the trust is referred to as 'funding' and involves re-titling property into the name of the trust. The process is fairly simple to do with brokerage and bank accounts, but requires a little more effort with real estate and motor vehicles.
The biggest mistake people make when setting up a revocable living trust is failing to re-title their property. Property does not become part of the trust until it is legally titled. Failing to re-title property can result in the property having to pass through probate and being distributed to rightful heirs according to state law.
Transferring ownership to living trusts does not mean a person loses control over their assets. The Trustee retains full control over transferred property throughout their lifetime. When the Trustee passes away a designated successor reconciles the trust to ensure property is distributed according to the will and testament.
The successor trustee doesn't have any legal rights to trust property before or after death unless gifted to them via the decedent's last Will. Nor, can they make changes to the trust. The successor trustee and beneficiaries are designated within the last Will.
People often believe if they write a will and testament their estate doesn't have to go through probate. It's important to note that every estate is subject to probate unless property is titled to a trust. However, people can engage in estate planning strategies that exempt certain kinds of assets from probate.
It's best to consult with an estate attorney to find out which methods offer the highest level of protection and least amount of taxation. Oftentimes, trust property is exempt from inheritance taxes. In situations where extreme wealth is passed along an irrevocable life insurance trust might be established to cover costs of inheritance taxes.
The reason probate is necessary is to record the person's death and transfer titled property and personal possessions to beneficiaries. As long as a person writes a Will and no major issues arise during estate settlement, probate isn't a difficult process.
It becomes complicated when there is no Will or when relatives disagree over how property was divided. Anytime a lawsuit is filed against the estate or the Will is contested, the probate process can become difficult and expensive.
Even if a person does not own much they should still write a Will because it allows the estate to avoid probate in certain situations. Each state sets a value for small estates that ranges between twenty five and seventy five thousand dollars. When estate value is less than the requirement it qualifies for faster reconciliation as long as a valid Will is recorded with the court.
With a living trust, the successor trustee is not only responsible for estate settlement. They also have full control over trust assets if the Trustee becomes incapacitated. Trusts include a power of attorney to authorize Successors to handle financial affairs and to act as a healthcare agent. For this reason it is important to select a trustworthy individual.
Living trusts are particularly beneficial to people that own real estate in multiple states. When people have property titled in different states the asset has to go through probate in each jurisdiction which can be time-consuming and costly.
Living trusts are also a good option when family strife is present. It is considerably more difficult to contest a living trust than a last Will. Anyone that feels heirs would contest the Will should consider transferring property to a trust.
At Craton and Switzer we provide personalized estate planning according to each client's needs. Whether you need a basic Will or an irrevocable life insurance trust we can help you achieve your life planning goals. We encourage you to contact us to arrange a consultation.
We also invite you to visit our estate planning blog to learn more about living trusts, child trust funds, succession planning, and estate and inheritance taxes.