Quite a few of my clients come to see me with a set of older documents which have a Will as the main legal document for managing their affairs at death. They have heard about Living Trusts and are wondering if planning with a trust would be the right thing for them.
While it is possible to do an estate plan built around a Will, in most of the cases in which people arrive in my office with only a existing Will, there is no evidence of any prior planning. By this, I mean they got the document but at no point got any planning built around the Will. No one ever asked the basic questions of what are their goals, how should things work, or for that matter considered how they would work.
That point is one thing that shocks a lot of people I speak with about Estate Planning. It is possible to have a Will and know exactly what it says, but have little or no idea what it does. it’s possible to get a Will from a lawyer who has no idea what the Will does but because the lawyer has not evaluated how the assets are owned. The key feature of estate planning that many people miss is that it is how the things are titled and organized that dictate what legal document (your Will, for example) controls it, not the other way around.
Of course, it’s possible to have a Living Trust without complete planning built around it. I’ve seen this quite a bit. Someone has the Living Trust, but the assets which should be owned in the Trust are in their individual names not in the Trust and none of their beneficiary designations have been adjusted to be in sync with the legal documents. At Clarity Legal Group we see planning as including educating the client about their options, carefully working with the client to define goals, creating the appropriate legal documents and organizing the client’s assets to realize the benefit of the legal documents. We usually use a Living Trust as the centerpiece of comprehensive planning.
What Is a Living Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Trustor (also referred to as a Maker, Grantor, or Settlor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts are first divided into one of two categories – testamentary or inter vivos – the latter of which is more commonly referred to as a living trust. A testamentary trust is a trust that arises upon the death of the Settlor, and which is typically activated by a provision in the Settlor’s Will or as a “sub-trust” within a Living Trust. A L:iving Trust is a trust that takes effect as soon as all the legalities of creation are in place. Living trusts are commonly revocable, meaning among other things that they can be changed by the people who created them. A revocable Living Trust is the type of trust often used to manage and distribute assets at death.
5 Reasons to Use a Living Trust
- Avoiding Probate. A Will must go through the probate process, meaning it often takes months, even years, before the assets controlled in the Will are distributed to the intended beneficiaries. In addition, probating a Will can be expensive, thereby diminishing the value of the estate that is ultimately distributed to loved ones. Assets distributed through a trust, however, are considered non-probate assets, meaning they can be distributed right away — or a least on a timeline determined privately by the Trustee — without the need to go through the court.
- Protecting a Child’s Inheritance. If you are a parent of a minor child, you likely want the assets you leave behind to go to provide for your child after you are gone. If your child is minor, however, the child cannot inherit outright. As such, assets given to a minor child whether through a Will, Trust, retirement account, or life insurance policy, must be managed by someone else until the child reaches the age of majority. The best way to accomplish this is through a sub-trust established under your Living Trust. Then you get to decide who will manage the assets through your choice of Trustee and the management is done privately, and not through a court supervised guardianship. Even for your adult child, distribution to the child in a sub-trust built into a Living Trust can provide valuable asset and divorce protection for the adult child.
- Retaining Control Over Gifted Assets. Once a gift is made outright, you have no control over how the gift is used by the beneficiary. With a trust, however, you have the option to use the trust terms to specify that the inheritance can only be used for the needs of the beneficiary. This might keep the person who has inherited from seeing the inheritance as a reason to fundamentally alter their lifestyle as well as protecting them from episodic poor choices. This can also protect the beneficiary from third parties who, learning of the inheritance, might attempt to take advantage of the situation. You might want to target the use of the inheritance, structuring a trust that pays a fixed amount, or one that is to be used primarily for education, healthcare or basic living expenses, for example.
- Management of What you Own During your Incapacity. A Will is a dormant legal instrument that does nothing until you die. A Living Trust is an exceptionally helpful tool for allowing someone of your choice to help manage your assets should you be unable to manage them yourself due to incapacity. Most of my clients are their own Trustees. They name family members or friends to share control with them when they are struggling with memory or capacity problems. This allows them to get help without completely giving up control. It also avoids sharing ownership of the accounts and thus undermining the estate plan and exposing the accounts to the creditors of the person helping. They ask those same people to take over altogether should they lose the ability to contribute in any way to management of their own affairs. This is done privately and enables many people to avoid the scenario where their incapacity takes them completely out of control of their affairs.
- Keeping the Details of Your Estate Plan Private. You may not be thrilled about the idea of the details of your estate plan being made public. The provisions of your Will — and more importantly — the identify and value of the assets passing under the Will — become public as soon as the Will is submitted to probate. A trust agreement, however, is almost never a part of a public record and thus the terms and assets are known only to the Trustees and beneficiaries.
Contact Durham Trust Lawyers
If you have additional questions or concerns regarding using a trust to distribute your estate, please contact the Durham trust lawyers at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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