Estate planning is something everyone needs to think about some time. Your
estate plan is the steps you take to direct who will get your property when you
die, what they will receive, and who will be in charge of distributing your
property in accordance with your wishes. This guide discusses "living trusts," a
commonly used estate planning tool that offers many benefits.
BackgroundTo understand the need for estate planning, it is important
to know what happens to your property when you die.
When you die, most of
your assets will be subject to probate. Probate (from a Latin word meaning
"prove") is the court process where your will is submitted and enforced by a
court. Probate involves court filings, appointing someone to oversee the
process, inventorying assets and notifying creditors.
There are several
reasons why people try to avoid probate. One is that it is usually time
consuming. Another is that it can be expensive. Typical costs for probating an
estate include the executor's fees, the executor's legal costs and the cost of
having property appraised.
Exceptions To Probate.Because probate can be costly and time consuming,
many estate plans include steps to avoid probate. One commonly used way to help
avoid probate is to hold property that you own with someone else in joint
tenancy. If property is held in joint tenancy, the other joint tenant
automatically receives your share when you die. The property does not go through
probate.
Another exception to probate is life insurance. When you die,
the proceeds of your life insurance policy goes directly to the beneficiaries
without going through the probate process.
What Is A Living Trust?A third exception to probate is a "living
trust." To understand what a living trust is, you first need to know a little
about trusts in general.
Trusts are legal devices that let one person
"own" property for the benefit of someone else. With a trust, a person can stop
being the legal "owner" of property while still receiving the benefits
associated with actual ownership. A trust is created when someone (a "trustor")
places property in a trust. A "trustee" holds and manages the property for the
benefit of someone else, who may later receive the property or the income or
other benefits it generates. The person who receives these benefits is the
"beneficiary."
A Living Trust is a special kind of trust that you create
while you are alive. Under a typical revocable Living Trust, you would place
property in trust for the benefit of yourself and at least one other person
(such as your child). You can name yourself trustee, or you can name some other
person or entity to serve in this capacity.
If the trust is not revoked
during your lifetime, the successor trustee takes control of the assets in the
trust when you become unable to do so and when you die, distributes them in
accordance with your instructions as stated in the trust document. This occurs
without the involvement of the probate court.
Benefits Of Living TrustsUse of Living Trusts have grown
popular because they offer significant benefits for many people. Here are
some of the main ones.
- Avoid delays and expense of probate. With a Living Trust, property can
often be transferred after death much faster than by Will, since property left
by a Will must go through the probate process. Also, the steps to be taken
under a Living Trust can be less expensive than administering a Will.
- Privacy. Living Trusts offer more privacy than Wills because Wills are
administered through courts, and court records are open to the public. The
contents of a Living Trust do not have to be made public.
- Flexibility. If you have a revocable Living Trust, you can change or
revoke it if you are not satisfied with how it is working.
- Help avoid guardianships if you become incapacitated. Living Trusts can be
used to help avoid guardianships (called "conservatorships" in some states). A
guardianship occurs when a person is declared legally incompetent and a court
appoints someone (a "guardian") to manage that person s money and make other
decisions for him or her. By having a living trust, you can eliminate the need
for guardian ship proceedings if you become incapacitated, since you will have
already appointed someone to manage your money in this situation.
- Hard to challenge. Another benefit is that Living Trusts are usually
harder to challenge than Wills.
Creating A living TrustA Living Trust is created by a written
agreement. The agreement will name a person or entity to serve as trustee
(normally you), a successor trustee to take over when the first trustee dies or
becomes incapacitated, and it will also name the beneficiaries. In addition, the
trust agreement will tell how to manage and distribute the property in the
trust.
Along with creating a trust agreement, property that will be put
in the trust must be transferred to it. You can place almost any type of
property in it, including money, real estate and stocks.
Laws about
making Living Trusts are technical, so it is important to seek legal help if you
want one. Your lawyer can also help prepare other papers used to transfer
property into the trust.
Changing A Living TrustIf you have a revocable Living Trust, you can
change it at any time. Some common times when you would change your Living Trust
would be to add property to it, change beneficiaries, or change the successor
trustee.
Changes to a Living Trust can usually be made just by preparing
a written Amendment.
ConclusionFor many people, Living Trusts offer significant estate
planning benefits. Whether a Living Trust is the best estate planning tool for
you depends on your financial situation, potential tax liability and other
personal factors. Our firm can help you achieve your estate planning goals so
your property goes to your loved ones in the most efficient and least costly
manner.
This article is published for the clients and friends of this firm. It
provides general information. Due to complexities and constant changes in the
law, exceptions to general principles of law, and variations of state laws, one
should seek professional legal advice before acting on any matter.
The Bronsther
Law Firm, P.C.
930 Route 146 Clifton Park, New York 12065
(518)
373-9000
PRACTICE AREAS
Real Estate. Bankruptcy. Elder Law
Estate
Planning & Administration
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