In many areas of the country, selling living trusts is big business. Living trusts salespeople hold seminars at motels, public libraries, community centers, and restaurants in which they tout the benefits of living trusts. According to a study conducted by the AARP, most persons who attend these seminars are elderly or retired. These salespeople say that probating an estate—the court-supervised procedure for administering the assets of a deceased person—is expensive and time-consuming and exposes your private affairs to public view.
By creating living trusts, they say, people can avoid probate, thereby saving their families time and money and aggravation. Living trusts also avoid conservatorships, they say, because if you become disabled, a trustee is already in place to manage your trust assets for you.
Most of these salespeople are honest. Few will tell you an outright lie. Not all living trusts are scams. They are useful and important tools in estate and tax planning, when used wisely and considerately. The most important reasons for having a living trust include:. Every trust must have four elements: There must be someone who creates the trust, who is often called the "trustor" or the "grantor.
The person for whose benefit the trust is created is called the "beneficiary. Why do people create living trusts? It goes quickly, is private for the most part, and does not cost much money. Living trusts can be and are contested, just like a will. Administering a living trust after your death is not cost-free. Even if probate is avoided, the successor trustee should usually seek help from a lawyer in making sure that your debts are paid, all of the necessary tax forms filed and the assets in your trust legally distributed to your beneficiaries.
There are many online legal services that can help you create a Trust. Since Trusts can be complicated, you may want to consider working with a Trust and estate attorney. In addition, there are online services that offer personalized online legal advice from an attorney, which can be a more affordable option.
Online : Factors to take into consideration when choosing an online legal service include cost, completion and delivery time, and the services offered by the site. For example, some online legal services will submit your documents to review by a paralegal after completion, while others may not.
Talk to friends, family members, and other attorneys to get recommendations. Trustee : The person, people, or entity such as a bank that agrees to hold the property or assets the grantor may be the Trustee.
Principal : The property or assets themselves, including money, which is held in the Trust and managed by the Trustee. Beneficiary : The person or people who ultimately receive the property or assets in the Trust. Testamentary Trusts are generally funded only after your death often with the assets of your estate. In order to fund a Testamentary Trust, language in the Will must explicitly state that all estate assets should be moved into the Trust upon death.
The estate assets can then be distributed and managed according to the terms of the Trust. All Trusts you want to create must be set up by you, the grantor, during your lifetime. However, not all Trusts immediately go into effect. You retain ownership and control of the property in the Trust and can change the terms of the Trust, including the Trustees and beneficiaries.
If you are setting up a Revocable Trust, you will likely be the sole Trustee. As the sole Trustee, you can move assets in and out of the Trust at will, without too much hassle.
Because of this, many people with Revocable Living Trusts put a large portion of their assets to be held in Trust, including real estate, financial accounts stocks, bonds, etc. You give ownership and control of the property in the Trust to others Trustees and therefore no longer own or control the property, making you unable to enact changes to the Trust. By putting assets into an Irrevocable Trust, you're essentially giving up ownership and control of those assets, so choose these assets carefully.
Which assets will be used to fund an Irrevocable Trust are generally determined by the goals of the Trust. Choosing a funding method is something you should decide with the help of a Trust and estates attorney. An attorney can help you complete and manage a re-titling of property.
If the primary goal of the Trust is to avoid excessive estate taxes, you'll likely want to set up an Irrevocable Trust since you don't have to pay taxes on it. If the primary goal of the Trust is to maintain control of assets in the event of incompetence, you'll likely want to set up a Revocable Trust, since you'll want to retain control over the assets in the Trust and the beneficiaries. There are many state and federal laws that must be carefully followed when setting up a Trust.
While some states will allow you to set up a Trust on your own using an online legal service, others require that you work with an attorney.
Many legal websites offer tools for setting up Trusts online, which are generally simple Trusts that achieve the basic goals of naming Trustees and beneficiaries. If you choose to set up a Trust online, you should still consult an attorney before finalizing any documents to make sure that they're legally binding and achieve all your goals. For instance, Wyoming established a 1,year maximum term on trusts, while Nevada set a shorter year maximum. But many states, such as South Dakota, have simply allowed trusts to go on perpetually.
Concerns about loss of gift- and estate-tax revenue have led some to consider new federal laws to ensure intergenerational exposure to estate-tax laws, but so far those considerations haven't led to any firm action. Trusts let you keep your business private, even after you die One of the greatest benefits of trusts is that there's no requirement for anyone to make their terms public, even after you die.
By contrast, once you file a will with a probate court, it becomes a public document and opens up the provisions of the will to anyone who wants to look at them. No matter how much or how little money you have, you may not want to share your financial secrets with the public at large. A trust can be the perfect vehicle to allow you to make your express instructions crystal-clear while still keeping outside audiences at bay during one of the toughest times your family will ever experience.
There are limits to the demands that trusts can make of beneficiaries A trust can reflect the wishes of the person who creates the trust, but there are still limits. If a trust provision requires that a beneficiary break the law to receive trust assets, then a court would strike down that condition. In addition, courts routinely invalidate provisions that run counter to public policy considerations.
Source: k via Flickr. For instance, a Texas court upheld a provision that took away a beneficiary's interest in a deceased person's trust when that beneficiary put the deceased person's wife into a skilled nursing facility. Even though the wife's doctor recommended the move, the deceased person's intent was clear and warranted the beneficiary's removal. Other provisions that have been upheld include requirements to marry within a certain religion.
However, requiring a trust beneficiary to get a divorce, as another example, is typically invalidated. If you expect to put tight controls on your money, it's smart to have a lawyer look over the document to make sure it will actually do what you think it will. Trusts can protect you and your family from creditors One great aspect of trusts is that they can help you protect your assets from attack from others.
In anything from a contentious divorce to a liability lawsuit, certain types of trusts will protect family members by leaving the assets within the trust beyond the reach of litigation or attachment.
Not just any trust will accomplish that purpose, though. A revocable trust that gives you complete flexibility to take distributions for your own needs won't stop creditors from making claims against your assets. But by using trusts to leave money to others, your heirs often will gain creditor protection to the extent that the trust limits their ability to take distributions.
Trusts can be complicated.
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