What is estate planning?

What is estate planning?

BASIC QUESTIONS ABOUT ESTATE PLANNING AND LIVING REVOCABLE TRUSTS

  1. WHAT IS A REVOCABLE LIVING TRUST?
  2. HOW IS A TRUST TERMINATED?
  3. IS THERE MORE THAN ONE KIND OF REVOCABLE TRUST?
  4. WHAT IS PROBATE?
  5. HOW DOES A LIVING TRUST AVOID PROBATE?
  6. WHAT ARE THE PRIMARY ADVANTAGES OF A LIVING TRUST?
  7. DOES THE LIVING TRUST PROTECT ASSETS FROM CREDITORS?
  8. WILL I LOSE CONTROL OF MY ASSETS IF I TRANSFER THEM INTO MY TRUST?
  9. WHICH ASSETS MUST BE TITLED IN THE NAME OF THE TRUST?
  10. CAN I TAKE ASSETS OUT OF THE TRUST ONCE THEY ARE PUT INTO THE TRUST?
  11. IF I PURCHASE A NEW HOME DO I HAVE TO CHANGE MY TRUST?
  12. HOW DO I CORRECTLY TITLE TRUST ASSETS?
  13. HOW DO I MAKE CHANGES IN MY TRUST?
  14. IF A BANK OR FINANCIAL INSTITUTION WANTS TO SEE MY TRUST WHAT SHOULD I TELL THEM?

1. WHAT IS A REVOCABLE LIVING TRUST?

A Revocable Living trust is a living legal entity, which is capable of holding assets. Historically, the purpose of the trust is to protect and administer assets for certain purposes during the lifetime of the creator of the trust and for after the death of the creator.

There are several elements to a trust. A trust has a trustor, a trustee, a beneficiary, and a corpus (assets). The creators of the trust must have a legal purpose for creating the trust, and must be full capable to create the trust on their own free will.

A Living Trust is created when the testator is alive and will exist even when the testator (creator) passes away. Once the death of the testator has occurred, the subsequent trustee(s) will hold the title of the trust and administer the trust assets for the benefits of the beneficiary (ies) according to the desires of the original testator. Sometime assets are delivered immediately to beneficiaries, or assets are distributed from the trust after the beneficiary reaches a specific age.

2. HOW IS A TRUST TERMINATED?

A Revocable Trust can be terminated by any of the creators of the trust during their lifetimes by executing a written Statement of Revocation. Usually the trust remains in existence until after the deaths of the creators, and then will automatically be terminates when the assets are full distributed to the final beneficiaries. One these assets are distributed to the beneficiaries, the trust no longer has assets (corpus), and the trust ceases to exist, considering there is no longer a legal, binding element.

3. IS THERE MORE THAN ONE KIND OF REVOCABLE TRUST?

The most common type of Revocable Trust is the Living Trust, which is created when the testator is still living and still holds his or her own assets. This does not come into being until after the death of the testator (creator). The creator’s assets are not funded in this trust until the Will goes through probate. For this reason, Testamentary Trusts are not commonly used.

4. WHAT IS PROBATE?

Probate is the court-supervised process, where the probate court analyzes and proves the validity of the decedent’s will, appraises the value of the estate, and administers the decedent’s estate for the benefit of the beneficiaries.

5. HOW DOES A LIVING TRUST AVOID PROBATE?

The Living Revocable Trust (Intervivos Trust) avoids probate by transferring titles using the operation of law, to the trustee of the trust. This involves no court involvement whatsoever. The trustee is then obligated to transfer assets for the benefit of the beneficiaries of the trust.

6. WHAT ARE THE PRIMARY ADVANTAGES OF A LIVING TRUST?

Besides avoiding the hassles of the involvement of probate courts, mentioned above, a properly drafted Living Trust is valid in all 50 states in America, (46 states and four commonwealths). The Living Trust is also private and does not need to be recorded by the county recorder or government.

As long as it has the basic attributes of a trust, such as a trustor, trustee, beneficiary, and corpus, the Living Trust is valid and legally binding. It is also endowed with advantages under tax law, including allowing married couples to preserve their rights to specific tax exemptions. Unlike a Will, a trust also provides for estate administration during periods where the creator may be incipaciated and unable to administer the trust without assistance.

7. DOES THE LIVING TRUST PROTECT ASSETS FROM CREDITORS?

The Living Trust is not a liability shield. The trust may afford the creators additional privacy and will make it more difficult for creditors to locate specific assets, but trustees who are in charge of their own trust will still be subject to the creators’ creditors, if there are any.

8. WILL I LOSE CONTROL OF MY ASSETS IF I TRANSFER THEM INTO MY TRUST?

A trust can be crafted to limit the control of the trustee over trust assets. However, in the vast majority of the cases, both single and married individual (s) create Living Revocable Trusts to grant trustees to manage their own trusts, leaving them with all the powers and authorities than an absolute owner would have over their very own assets. As a result, the previous asset owner becomes the trustee, trustor, and initial beneficiary of all assets, including retaining full rights of ownership and enjoyment of said assets.

9. WHICH ASSETS MUST BE TITLED IN THE NAME OF THE TRUST?

All assets, which are not exempt from probate, according to the probate code, should be transferred into the trust. This includes real estate, bank accounts, certificates of deposit, money market funds, mutual funds, stocks, bonds, limited partnerships, corporations, sole proprietorships, and all personal property.

Personal properly does exclude, however, IRA’s, 401 K’s, insurance policies, automobiles, qualified retirement plans, IRA’s, and other examples. These specific assets already have named beneficiaries. However, it is recommended that the trust be named as a secondary beneficiary, even for assets that already have a primary beneficiary named, such as IRA’s, and certain insurance policies.

10. CAN I TAKE ASSETS OUT OF THE TRUST ONCE THEY ARE PUT INTO THE TRUST?

Yes! The creator of the trust is able to take any assets out of the trust or put any asset into the trust that he or she desires. An asset can be sold from the trust or purchased in the name of the trust. During the lifetime of the creator, they have the sole authority to close any bank account and invest otherwise, such as in stocks, bonds, or mutual funds, if they wish to do so.

11. IF I PURCHASE A NEW HOME DO I HAVE TO CHANGE MY TRUST

Absolutely not! The creator of the trust can and should continue to invest his or her money and assets to achieve a secure and diversified portfolio. No matter how many properties or assets the creator buys or sells, the trust document itself will not need to be changed. The creator MUST make sure, however, that the title of the new asset (be it a house, for example), is worded correctly so that the new property will be considered official “trust property”, owned by the creator, and able to be distributed to said beneficiaries.

12. HOW DO I CORRECTLY TITLE TRUST ASSETS?

The best way to title a trust asset will include the name of the trustee(s), the name of the trust itself, and the date when the trust was created. For example, a proper way to correctly title a new trust asset is as such: Mr. John Doe and Mrs. Mary Doe, Trustees of the Doe Family Trust, Dated July 3, 1993.

13. HOW DO I MAKE CHANGES IN MY TRUST?

A written, signed amendment can be made to effectuate a change in a trust document. The amendment may revoke or eliminate an existing term, or add an additional term. A valid amendment will revoke that portion of the trust that is unnecessary, or conflicts with the present intent, and will state the additional changes that the creator wishes to make. Furthermore, all the creators of the trust should sign the amendments, and signature should be notarized

14. IF A BANK OR FINANCIAL INSTITUTION WANTS TO SEE MY TRUST WHAT SHOULD I TELL THEM?

A trust is a completely private document. You are under no obligation to show the bank your trust instrument. However, if you are changing an existing asset or account in the trust, the bank may ask to see a copy of the trust. They are only doing this to verify that the trust is properly constructed and capable of holding a title to the bank account or investment. They may also want to see the signature page of the trust or the title page (the first page of the trust), and they may wish to see the portion that designates who the trustees are (the individuals who actually hold legal title to all trust assets.)

While this is very rare, there is sill a few institutions, which ask for a copy of the entire trust document for their own private records. The Summation of Relevant Trust Provisions letter, found at the beginning of the Trustee Instruction section of your trust book, should be enough to satisfy any bank or institution, which asks for this type of documentation.

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