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1. I have a will.
Why would I need a living trust?
2. What is
probate?
3. What is so bad
about probate?
4. Doesn't joint
ownership avoid probate?
5. Why would a
court get involved if I become incapacitated?
6. Does a power of
attorney prevent the court's involvement at incapacity?
7. What is a
living trust?
8. How does a
living trust avoid probate?
9. Do I lose
control of the assets in my trust?
10. Is it hard to
transfer assets into my trust?
11. Doesn't this
take a lot of time?
12. Should I
consider a corporate trustee?
13. If something
happens to me, who has control?
14. What does a
successor trustee do?
15. Who can be
successor trustees?
16. Does my trust
end when I die?
17. How can a
living trust save on estate taxes?
18. Doesn't a
trust in a will do the same thing?
19. Is a living
trust expensive?
20. How long does
it take to get a living trust?
21. Should I have
an attorney do my trust?
22. If I have a
living trust, do I still need a will?
23. Is a "living
will" the same as a living trust?
24. Are living
trusts new?
25. Who should
have a living trust?
26. Summary of
Living Trust Benefits
1. I have a will. Why would I need a living trust?
Contrary to
what you've probably heard, a will may not be the best plan for
you and your family--primarily because a will does not avoid
probate when you die. A will must be verified by the probate
court before it can be enforced.
Also, because a will can only go into effect after you die, it
provides no protection if you become physically or mentally
incapacitated. So the court could easily take control of your
assets before you die--a concern of millions of older Americans
and their families.
Fortunately, there is a simple and proven alternative to a
will--the revocable living trust. It avoids probate, and lets
you keep control of your assets while you are living--even if
you become incapacitated--and after you die.
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2. What is probate?
Probate is the
legal process through which the court sees that, when you die,
your debts are paid and your assets are distributed according to
your will. If you don't have a valid will, your assets are
distributed according to state law.
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3. What is so bad about probate?
It can be
expensive. Legal/executor fees and other costs must be paid
before your assets can be fully distributed to your heirs. If
you own property in other states, your family could face
multiple probates, each one according to the laws in that
state.
It takes time, usually 6 months to 2 years. During part of this
time, assets are usually frozen so an accurate inventory can be
taken. Nothing can be distributed or sold without court and/or
executor approval. If your family needs money to live on, they
must request a living allowance, which may be denied.
Your family has no privacy. Probate is a public process, so any
"interested party" can see what you owned and who you owed. The
process "invites" disgruntled heirs to contest your will and can
expose your family to unscrupulous persons.
Your family has no control. The probate process determines how
much it will cost, how long it will take, and what information
is made public.
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4. Doesn't joint ownership avoid probate?
Not really – it
usually just postpones it. With most jointly owned assets, when
one owner dies, full ownership does transfer to the surviving
owner without probate. But if that owner dies without adding a
new joint owner, or if both owners die at the same time, the
asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner, you lose
control. Your chances of being named in a lawsuit and of losing
the asset to a creditor are increased. There could be gift
and/or income tax problems. And since a will does not control
most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign
to sell or refinance. So if a co-owner becomes incapacitated,
you could find yourself with a new "co-owner" -- the court--even
if the ill owner is your spouse.
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5. Why would a court get involved if I become
incapacitated?
If you can't
conduct business due to mental or physical incapacity
(Alzheimer's, stroke, heart attack, etc.), only a court
appointee can sign for you – even if you have a will. (Remember,
a will only goes into effect after you die.)
Once the court gets involved, it usually stays involved until
you recover or die. The court, not your family, controls how
your assets are used to care for you. This public process can be
expensive, embarrassing, time consuming and difficult to end if
you recover. And it does not replace probate at death – your
family could have to go through the court system twice!
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6. Does a power of attorney prevent the court's
involvement at incapacity?
A durable power
of attorney lets you name someone to manage your financial
affairs if you are unable to do so. However, many financial
institutions won’t honor one unless it's on their form. And, if
accepted, it may work too well -- giving someone a "blank check"
to do whatever he/she wants with your assets. It can be very
effective when used with a living trust, but risky when used
alone.
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7. What is a living trust?
A living trust
is a legal document that, just like a will, contains your
instructions for what you want to happen to your assets when you
die. But, unlike a will, a living trust avoids probate at death,
can control all of your assets, and prevents the court from
controlling your assets at incapacity.
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8. How does a living trust avoid probate?
When you set up
a living trust, you transfer assets from your name to the name
of your trust, which you control -- such as from "Bob and Sue
Smith, husband and wife" to "Bob and Sue Smith, trustees under
trust dated (date of trust)."
Legally you no longer own anything (don't panic: everything now
belongs to your trust), so there is nothing for the courts to
control when you die or become incapacitated. The concept is
very simple, but this is what keeps you and your family out of
the courts.
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9. Do I lose control of the assets in my trust?
Absolutely not.
You keep full control. As trustee of your trust, you can do
anything you could do before -- buy/sell assets, change or even
cancel your trust (that's why it's called a revocable living
trust). You even file the same tax returns. Nothing changes but
the names on the titles.
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10. Is it hard to transfer assets into my trust?
No. Some
assets, like real estate, will be transferred for you by the
attorney. For other assets like stocks, CDs, and bank accounts, you
will need to change the titles, but the attorney will show how
it is done. Most living trusts also include jewelry, clothes,
art, furniture, and other assets that do not have titles.
Also, beneficiary designations on some assets (like insurance)
should be changed to your trust so the court can't control them
if a beneficiary is incapacitated or no longer living when you
die. IRAs 401(k)s, etc. can be exceptions. The attorney will
explain how all this works.
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11. Doesn't this take a lot of time?
It will take
some time -- but you can do it now, or you can pay the courts
and attorneys to do it for you later. One of the benefits of a
living trust is that all your assets are brought together under
one plan. Don't delay "funding" your trust. It can only protect
assets that have been transferred into it.
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12. Should I consider a corporate trustee?
You may choose
anybody of legal age to be your successor trustee. However, in
some cases, people select a corporate trustee (bank or trust
company) to act as successor trustee or co-trustee. But this is
usually only done if the immediate members of your family do not
have the time, ability or desire to act as your trustee. If you
feel your family situation will require having a corporate
trustee, discuss it with the attorney at your first meeting.
Corporate trustees are generally more expensive, but they are
also more experienced as investment managers and are objective
and reliable.
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13. If something happens to me, who has control?
If married, you
and your spouse are co-trustees, either can act and have instant
control if one becomes incapacitated or dies. If something
happens to both of you, or if you are the only trustee, your
handpicked successor trustee will have authority to act on your
behalf.
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14. What does a successor trustee do?
If you become
incapacitated, your successor trustee looks after your care and
manages your financial affairs for as long as needed, using your
assets to pay your expenses. If you recover, you automatically
resume control. When you die, your successor trustee pays your
debts and distributes your assets. All this is done quickly and
privately, according to instructions in your trust, without
court interference.
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15. Who can be successor trustees?
Successor
trustees can be individuals (adult children, other relatives, or
trusted friends). You should name more than one in case your
first choice is unable to act.
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16. Does my trust end when I die?
Unlike a will,
a trust doesn't have to die with you. Assets can stay in your
trust, managed by the trustee you have chosen – until your
beneficiaries (including minor children) reach the age(s) you
want them to inherit. You may also have an ongoing trust to
provide for a loved one with special needs.
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17. How can a living trust save on estate taxes?
If you die in
2007 or 2008 and the net value of your estate (assets less
debts) is more than $2,000,000, federal estate taxes (starting
at 45%) must be paid. If you are married, your living trust can
include a provision that will let you and your spouse combined
leave up to $4 million estate tax-free to your loved ones,
saving $900,000. In 2009 the estate tax exemption increases to
$3.5 million each or $7 million per couple. In 2010, the estate
tax is basically eliminated for one year. Then, in 2011, the
estate tax exemption reverts back to a previous amount that
appears to be $1 million per person. There is currently
legislation being considered that would create a more consistent
approach to this, but nothing has been settled yet.
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18. Doesn't a trust in a will do the same thing?
Not quite. A
will can contain wording to create a testamentary trust to save
estate taxes, care for minors, etc. But, because it's part of
your will, this trust cannot go into effect until after you die
and the will is probated. So it does not avoid probate and
provides no protection at incapacity.
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19. Is a living trust expensive?
No, not when
compared to all the costs of court interference at incapacity
and death. See our pricing page.
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20. How long does it take to get a living trust?
It should only
take a few days to prepare the legal documents after you make
the basic decisions and have had your initial attorney
consultation.
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21. Should I have an attorney do my trust?
Yes, but you
need the right attorney. A local attorney, like Richard
Williamson, who has considerable experience in estate planning
will be able to give you valuable guidance and peace of mind
that your trust is prepared properly.
You
may see advertisements for "document assistants" or "paralegals"
who claim to perform these services for an unrealistically small
fee. They provide shoddy fill-in-the-name type forms that
usually cause more problems then they solve. By law, these
"document assistants" or "paralegals" cannot give you legal
advice - doing so is a criminal act. If you have a trust that
was drafted by one of these type operations, our office can fix
it for you. Call for more info.
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22. If I have a living trust, do I still need a
will?
Yes, you need a
"pour-over" will that acts as a safety net if you forget to
transfer an asset to your trust. When you die, the will
“catches" the forgotten asset and sends it into your trust. The
asset may have to go through probate first, but it can then be
distributed as part of your living trust plan.
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23. Is a "living will" the same as a living trust?
No. A living
trust is for financial affairs. A living will is for medical
affairs—it lets others know how you feel about life support in
terminal situations. Living wills are not longer used in
California. These matters are now provided for in an Advance
Health Care Directive.
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24. Are living trusts new?
No, they've
been used successfully for hundreds of years.
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25. Who should have a living trust?
Age, marital
status and wealth don't really matter. If you own titled assets
and want your loved ones (spouse, children or parents) to avoid
court interference at your death or incapacity, consider a
living trust. You may also want to strongly consider encouraging
other family members to have one so you won't have to deal with
the courts at their incapacities or deaths.
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26. Summary of Living Trust Benefits
- Avoids
probate at death, including multiple probates if you own
property in other states
- Prevents
court control of assets at incapacity
- Brings all
your assets together under one plan
- Provides
maximum privacy
- Quicker
distribution of assets to beneficiaries
- Assets can
remain in trust until you want beneficiaries to inherit
- Can reduce
or eliminate estate taxes
- Inexpensive,
easy to set up and maintain
- Can be
changed or cancelled at any time
- Difficult to
contest
- Prevents
court control of minors' inheritances
- Can protect
dependents with special needs
- Prevents
unintentional disinheriting and other problems of joint
ownership
- Professional
management with corporate trustee
- Peace of
mind
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