Wills and Trusts
What everyone should know about Trusts,
Estate and Elder planning
You may be under the impression that the Revocable Living Trust is the most important idea in estate planning to come along in the last fifty years.
It’s not true!
Trusts are not a new idea. They have been around since long before wills. But, they are a great idea.
Under the common law concept of Primogeniture, the Lord of the Manor did not have the option of writing a will. All of his property went to his eldest son. The wife could not own property.
Sometimes, the eldest son was not the brightest or was not capable of running the family estate. Therefore, the barristers and solicitors of the day devised a plat whereby the Lord of the Manor could enter into a contract with a trusted friend (thereby the name "trust") so that the friend would hold title to the property, giving the income to family members as directed by the Lord. Upon his death or at some other time, the assets were then given to the appropriate person.
But, enough about history.
What is a Living Trust?
A trust is a legal form of ownership where property is held for the benefit of another. Simply stated, a living trust is a type of contractual relationship created by individuals or couples during their lifetime, generally for their families. You have a great deal of flexibility in that you can name yourself or your family members or even a bank as trustees, with whomever you chose to succeed you upon your death.
Why should I have a Trust?
In short, a trust is much cheaper than Probate. It is much quicker that Probate. There is no need to file an inventory of your assets, annual accountings and other personal financial information with the Courts. There is frequently no need to advertise. Distribution can be immediate. While you are writing your trust, you can take certain steps to save on estate taxes.
Why can’t I just use a Will?
You may. But, wills take longer to administer and are ultimately more expensive than a trust. Wills do not generally serve the same purpose as a living trust. With a will, the court oversees transferring your assets through an officer of the court called a Personal Representative. This Personal Representative is required to file inventories and to publish notices in the newspaper. Unless waived, the personal representative is also required to post a bond and do periodic accountings. Wills can easily be contested by unhappy heirs, but living trusts are not as easy to contest. Perhaps more important, a will cannot be used to manage your assets during your lifetime and has little of the flexibility found in a trust.
May I make changes to the Trust?
Yes. So long as you keep the trust "revocable," you can make any changes you want. Remember. A trust is nothing more than a contract. You can put almost anything in a contract so long as it is not against public policy.
You can do this yourself, although we recommend that you see an attorney and a financial advisor so that the proper formalities are followed and tax savings are assured.
What if I have Property in another State?
Your heirs will be required to probate your assets in both states, thereby doubling the expense and creating more problems, unless you have a trust.
How does a Trust affect my Business?
If you or your family owns your business, the trust assures continuity. Someone is in charge without taking the time and going to the expense of having the court appoint a personal representative.
A trust can assure continuity of a business better than other plans by themselves. It should be used in conjunction with a corporation and is virtually imperative for a sole proprietorship or partnership. Sole proprietorship or partnerships generally terminate upon the death of a member if that member does not have a trust.
What happens if I become Disabled or just
can’t take care of my affairs anymore?
Depending upon your circumstances and your special needs, the trust should be written so as to allow your trustee (the person you trust) to come in and take over your affairs. Because this is a sensitive area, it should be discussed in detail with your attorney. It should be discussed in detail both as to the person who would serve as trustee and the circumstances under which the trustee would intercede. In any event, if the trustee comes in prematurely, you can either revise the trust, remove the trustee or remove the trustee’s authority to act.
Who owns my assets?
The beneficiaries (generally you and your family) have beneficial ownership of the assets although technically the assets must be transferred into the names of the trustees, as trustees. As stated, you should retain the right to revoke the trust or modify it any way you desire.
How is the Property actually transferred?
One of the most important factors of the trust is to remember to transfer your property into the trustee’s name. If you are the trustee, the property should be titled in your name ". . . as trustee . . . " You should be given precise instructions at the time your trust is established.
IT IS VERY IMPORTANT THAT THE ASSETS BE ACTUALLY TRANSFERRED.
When the assets are owned by the trustee, the successor trustee needs only pass title as you would during your lifetime - for example by writing a check out of a checking account, executing a deed as to the real estate or signing other simple papers as required by your banker, a broker, etc.
How do I choose a trustee?
Generally, the initial trustees are you and your spouse or one of you. We always recommend appointing a "successor" trustee to take over when you cannot serve. The best candidates are your adult children, relatives, friends or financial institutions with trust powers. Most large banks have trust powers and these institutions are very professional but somewhat pricey. We find however that the expert investment and other recommendations outweigh the cost for large estates. Remember that you should use the term approach.
Who else should be involved?
At a minimum you should have the advice of a professional financial planner. Not your neighbor. Not your brother-in-law. Not even just your attorney. Have a professional look over your portfolio.
You should also make family members aware of your decisions at such time as you feel comfortable doing so.
Do living trusts save estate taxes?
The living trust serves as a structure around which most estate tax savings plans are built.
A well-written trust will allow the married couple to save estate taxes by taking full advantage of the unified estate tax exemption in the estate of the first to die. You then shelter more when the survivor dies. Other types of trusts can be built around such a plan.
This technique is sometimes called a bypass trust or credit shelter trust or a QTIP trust and will save you substantial sums in estate taxes. The trust may also include techniques such as annual tax-free gifts.
Does this complicate my income tax?
No. You do not have to file additional income tax forms for the living trust as long as you and your spouse are still alive. You may still file on form 1040, using your own social security number, even though the property is held in the name of the trust.
When the first spouse dies, the trustee of a trust with the bypass provision must file a fiduciary tax return and you will need to obtain a new employer identification number to replace the social security number.
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