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Trusts: Not Just for the Wealthy
Too often, the terms "trust" or "trust fund babies" conjure up images of the Rockefellers or Hiltons living extravagantly off their family wealth for generations.
In reality, there are numerous kinds of trusts and one need not have buildings named after him/her to enjoy the benefits and protections of a trust document. In short- you do not need to be wealthy to have a trust.
If you fall into one of the following categories, you should consider sitting down with an estate planning attorney to draw up a trust:
Revocable Living Trusts
For most individuals and couples, particularly those who fall into categories 1-5 above, a Revocable Living Trust is often the preferred option.
What is a Revocable Living Trust?
A Revocable Living Trust is a trust which you create during your lifetime. The fact that the trust is revocable means that it may be changed or terminated at your wish as long as you continue to be competent at that time.
Why should I use a Revocable Living Trust versus a Will?
One of the major benefits of having a Revocable Living Trust is allowing you to avoid probate. Also, it will allow a chosen agent to seamlessly manage your assets if you become incapacitated. You will still need a Will to serve as a back-up in case you fail to re-title assets in the trust’s name during your lifetime.
How does my Revocable Living Trust function?
During your lifetime you will retain control of all the income and principal in your Revocable Living Trust. Upon your death, the Trust will pass down the assets however you have specified in the document, and it will do so outside of probate court.
What exactly are the benefits of a Revocable Living Trust?
The use of a Revocable Living Trust allows for property to be managed uninterrupted by incapacity. Through proper planning and funding of a Revocable Living Trust, if you were to become incompetent your Successor Trustee will be able to step in and manage all your financial affairs for any items that are in the trust.
Another major benefit of the Revocable Living Trust is that it avoids probate. Please note that by doing a Revocable Living Trust, you will not avoid all costs, as you will still have to pay legal fees for the drafting of the trust, and may have to pay fees for administering the trust. However, this is often less expensive than the probate process. Plus, the use of the trust will allow you to avoid much of the time delays and aggravations which are associated with the probate procedures. Further if you have property in other states than where you reside, it will also allow you to avoid probate in those states. Finally, some people like that a Revocable Living Trust provides privacy versus the probate process.
Are there disadvantages to a Revocable Living Trust?
One of the disadvantages of the Revocable Living Trust is that any expenses which you incur are done so immediately. The expenses are not deferred until your death, as is the case in probate. Trusts are more expensive to draft than wills. In addition, by properly funding the trust there may be incurred expenses for retitling of assets depending on your situation. Finally, there may also be fees for a Trustee who is allowed a commission for managing the trust. Please note, however, these fees are often waived and not taken if the trustee is a family member who is going to be an ultimate beneficiary of the trust.
What are the tax consequences of having a Revocable Living Trust?
During your lifetime and as long as you are the trustee and managing the trust all of the items which you place into the trust will be taxed using your social security number, therefore you will not see any change at all tax wise. All income will be reported on your normal income tax return as it was before you set up the trust.
What happens to my Revocable Living Trust upon my death?
Upon your death, your trust will become irrevocable, and is no longer able to be amended or changed. All of the assets that were in your trust will still be considered in your estate for tax purposes, and the Successor Trustee will then take over duties, and distribute the assets according to your particular estate plan. Please note, the Trustee may also be responsible for some miscellaneous tasks such as insuring that a final tax return is prepared, and upon distribution of the trust, that a final accounting has been done. It is a good idea for the Successor Trustee to contact your attorney to ensure that all things are properly concluded at your death
If I have a Revocable Living Trust do I still need other estate planning documents?
The Revocable Living Trust is only a part of your estate plan. You will still need a Pour Over Will, which acts as a safety net to pour anything that was not properly titled into the Trust. Also, a Power of Attorney is still a very important document, as it allows an agent to handle any assets not titled inside the trust. Finally, documents for health care decision making, such as the Health Care Power of Attorney and/or the Living Will, are vital so that others can act on your behalf when you no longer can.
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