Revocable Living Trusts
Questions People Ask a Living Trusts Attorney in Denver
What is a living trust?
A living trust is a legal arrangement that works like a basket. The trustmaker (also known as the grantor) agrees to put his assets into the trust basket. The trustmaker makes the rules in the trust agreement about how the trust will be managed. The trustmaker also appoints a trustee, who manages the property in the basket according to the rules. While you are alive and well, you can be the trustee of your trust. The rules of the trust also determine who gets the benefit of the property in the basket. These people or institutions are the “beneficiaries” of the trust. Usually, you and family members you have chosen are the beneficiaries of your trust while you are alive and well. In this way, you continue to be in control of the property in your trust basket.
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.
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.
Why would the court get involved at incapacity?
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!
Does a durable power of attorney prevent the court’s involvement?
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.
How does a living trust work?
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.
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.
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.
Is it hard to transfer assets into my trust?
No, and your lawyers, trust officer, financial adviser and insurance agent can help. You need to change titles on real estate (including out-of-state property) and other titled assets (stocks, CD’s, bank accounts, other investments, insurance, etc.). 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. (IRA, 401(k), etc. can be exceptions.)
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.
Should I consider a corporate trustee?
You may decide to be the trustee of your trust. However, some people select a corporate trustee (bank or trust company) to act as trustee or co-trustee now, especially if they don’t have the time, ability or desire to manage their trusts, or if one or both spouses are ill. Corporate trustees are experienced investment managers, they are objective and reliable, and their fees are usually very reasonable.
If something happens to me, who has control?
If 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 step in. If a corporate trustee is already your trustee or co-trustee, they will continue to manage your trust for you.
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.
Who can be successor trustees?
Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should name more than one in case your first choice is unable to act.
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 person or corporate trustee you have chosen – – until your beneficiaries (including minor children) reach the age(s) you want them to inherit, or to provide for a loved one with special needs.
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.
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.
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 encourage other family members to have one so you won’t have to deal with the courts if they are incapacitated or when they die.
To learn more about how a living trust might be useful for you, reserve a space at one of our upcoming workshops, or contact a living trusts attorney for an appointment.