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Living Trusts Frequently Asked Questions
Q: If I have a Will, why would I want a Living Trust?
A: A Living Trust will help you avoid Probate when you die. A Will must be administered through a court process called Probate. This is costly, time consuming and a matter of public record. In addition to avoiding Probate, if you become incapacitated, your Successor Trustee can manage your financial affairs according to instructions in your Living Trust without court involvement. If you can’t conduct business due to mental or physical incapacity, only a court appointee can sign for you even if you have a Will. The Will only goes into effect after you die. Once the court get involves, the court will stay involved until you recover or die. The court, not your family, controls how your assets will be used for your care. This public process can be expensive, embarrassing, time consuming, and difficult. Your Living Trust can appoint who you want to act as your guardian and further allows your Successor Trustee without court appointment to manage your assets.
Q: How does a Living Trust avoid Probate and prevent court control of assets if incapacitated?
A: When you set up your Trust, you transfer your property from your name to the name of your Trust. You control your Trust. However, from a legal stand point, you no longer own anything so there is nothing for the courts to control when you die or become incapacitated. Everything now belongs to your Trust which you control.
Q: Do I lose control of the assets in my Trust?
A: Absolutely not! You maintain full control and most Living Trusts are established with you as the initial Trustee. You can do anything you could do before including buying and selling assets, gifting and making investments. You can change and even cancel your Trust. That is why it is called a Revocable Living Trust. You even file the same tax returns using your social security number. Nothing changes but the names on the titles of your assets.
Q: Is it hard to transfer assets into my Trust?
A: No. Your attorney, trust officer, financial advisor, and insurance agent can help. You need to change titles on real estate both within the state of Colorado and outside of the state. This includes time shares. Other titled assets such as stocks, CD’s, bank accounts, and vehicles, also must be placed in the name of the Trust. A comprehensive transfer document can transfer most of your tangible personal property including: jewelry, clothes, art, furniture, and other assets that do not have titles. Also beneficiary designations on some assets like insurance and bank accounts should be changed to the Trust so the court cannot control them if a beneficiary is incapacitated or no longer living when you die. IRAs, 401(K), and other ERISA plans normally should not be transferred into your Trust.
Q: Doesn’t this take a lot of time?
A: 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 Trust is that all of your assets are brought together and under one Estate Plan. A Trust is no good unless it is properly funded. It will only accomplish your goal if you place the property into the Trust. You do not want to delay in funding your trust. It only protects assets that have been transferred into it.
Q: Should I consider a Corporate Trustee?
A: Initially you will be the Trustee of your Trust. However, some people select a Corporate Trustee such as a bank or Trust company to act as Trustee or co-Trustee now if they do not have time. If your spouse who managed most of your finances previously has passed, you might also decide to have a Corporate Trustee manage your property to insure it is properly protected. The willingness to acknowledge that one lacks the ability or desire to manage their Trust can often protect their legacy for themselves, loved ones, and future generations. Many professional athletes and entertainers lack the financial and investment savvy to properly manage their assets. In those instances, setting up a Trust with a Corporate Trustee who is a fiduciary to properly protect their assets can be very valuable. Corporate Trustees are experienced investment managers. They are objective and reliable and their fees are usually very reasonable. You may also wish to have a Corporate Trustee for a beneficiary who is not financially responsible or has a drug alcohol or other issue whereby you would not want them managing their own money. Rather than have one of their siblings responsible the managing Trust on their behave, with the potential conflicts associated with that, you may decide on a Corporate Trustee to take care of those funds for that special needs person. Placing that burden on a friend, family member or sibling to assume the emotional and physiological burden as well as the financial stress may not be appropriate.
Q: If something happens to me, who has control?
A: If you and your spouse are co-trustees, either can act and have sole control if one becomes incapacitated or dies. If something happens to both of you or if you are the only Trustee and become incapacitated, the Successor Trustee you selected will step in. If a Corporate Trustee is already your co-Trustee, they will continue to manage your Trust for you.
Q: What does a Successor Trustee do?
A: If you become incapacitated your Successor Trustee assumes control over the assets in your Trust. This person will look after your care and will manage your financial affairs for as long as needed. They will use your assets to pay your expenses. If you recover you automatically resume control. When you die your Successor Trustee pays your debt and distributes your assets. All of this can be done quickly and privately according to the instructions in your Trust and without court interference.
Q: Who can be Successor Trustees?
A: Successor Trustees can be individuals including adult children, other relatives, or trusted friends. Successor Trustees can also be Corporate Trustees. If you choose an individual, you should name more than one in case your first choice is unable or unwilling to act.
Q: Does my Trust end when I die?
A: Unlike a Will, a Trust does not have to end when you die. Assets can remain in your Trust and be managed by the Trustee you selected until your beneficiaries reach an age which you feel is appropriate for them to inherit. The Living Trust can continue longer to provide for a beneficiary with special needs or to protect the assets from beneficiary’s creditors, ex-spouses and future death taxes. Typically this involves creating cascading Trusts which are created for each individual beneficiary upon your death. These cascading Trusts are set up for each individual beneficiary and usually include separate terms and conditions for distribution as well as different Trustees for management of the assets.
Q: How can a Living Trust save Estate Taxes?
A: If you die in 2009 and the net value of your Estate is more than $3.5 million, Federal Estate Taxes must be paid on the excess at a rate of 45%. If you’re married, your Living Trust can include a provision that will let you and your spouse leave up to $7 million Estate tax free. This is a savings of up to $1,575,000.00 in taxes.
Q: Is a Living Trust expensive?
A: Not when compared to all the cost of the court probate process upon incapacity and death. How much you pay depends on how complicated your Estate Plan is based upon the needs of your beneficiaries.
Q: How long does it take to get a Living Trust?
A: It should only take a few weeks to prepare the legal documents after you make the basic decisions.
Q: Should I have an attorney do my Trust?
A: Yes, but you need the right attorney. A local attorney who has considerable experience in Living Trusts such as Meurer Law Offices, P.C. would be able to give you valuable guidance and peace of mind that your Trust is prepared properly. There have been numerous changes in the laws over the last 8 years, many of which affect how a Trust is created and operates. Purchasing form documents off of the internet or from an office supply store often will not include the appropriate language and may lead to unintended consequences.
Q: If I have a Living Trust, do I still need a Will?
A: Yes, you need a “pour over” Will that transfers assets into your Trust that you forgot to properly title or designate as Trust property. This “pour over” Will acts as a safety net and catches any assets you forgot to place into your Trust. These assets may have to go through Probate first, but they can then be distributed as your Trust plan.
Q: Is a “Living Will” the same as a “Living Trust”?
A: No, a Living Trust is for financial affairs. A Living Will is for medical affairs and lets others know how you feel about life support in terminal situations. A Living Will is used to designate when you want life support, nutrition and hydration withdrawn in the event of a terminal condition or lapse into an irreversible coma.
Q: Are Living Trusts new?
A: No they have been used successfully for hundreds of years.
Q: Who should have a Living Trust?
A: Age, marital status and wealth do not really matter. If you own titled assets and want your loved ones 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 that you do not have to deal with the courts at their incapacity or death.
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Meurer Law Offices
5347 S. Valentia Way, Suite 220
Greenwood Village, Co. 80111
303.991.3544
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MEURER LAW OFFICES, P.C.
5347 South Valentia Way, Suite 220
Greenwood Village, CO 80111
Phone: 303-991-3544
