UTAH ESTATE PLANNING ESSENTIALS
If I have a will do I need a Living Trust?
A will may not be the best plan for you and your family, mostly because a will does not avoid probate when you die. A will must be validated by a court of law before it can be enforced.
Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets BEFORE you die—a concern for millions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will—the revocable living trust. It avoids probate and lets you keep control of your assets while you are living—even if you become incapacitated—and after you die.
What is Probate and What's so bad about 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.
It can be expensive. Legal fees, executor fees, court filing fees and other costs must be paid before your assets can be fully distributed to your heirs. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. These costs can very widely; it would be a good idea to find out what they are now.
It takes time, usually nine months to two years, but often longer. During part of this time, assets are usually frozen so an accurate inventory can be taken. Nothing can be distributed or sold without the court and/or executor approval. If your family needs money to live on, they must request a living allowance, which could get denied.
Your family has no privacy. Probate is a public process, so any “interested party” can see what you owned, whom you owed money to, who will receive your assets, and whey they will receive them. The process “invites” disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.
Your family has no control. The court process determines how much it will cost, how long it will take, and what information is made public.
Doesn’t joint ownership avoid probate?
Not really. Using joint ownership usually postpones probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if the 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 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 by adding a co-owner.
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 incapacitated owner is your spouse.
Court involvement at Incapacity
If you can’t conduct business due to mental or physical incapacity (dementia, stroke, heart attack, etc.), only a court appointee can sign for your—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 and it, not your family, will control how your assets are used to care for you. This public, “living” probate process can be expensive, embarrassing, time consuming and difficult to end. And, “living” probate does not replace probate at death, so your family may have to go through the probate court twice!
Does a durable power of attorney prevent this?
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 will not honor one unless it is on their form. If accepted, it may work too well, giving someone a “blank check” to do whatever he/she want with your assets. It can be very effective when used with a living trust, but risky when used alone.
The Revocable Living Trust
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 can avoid probate at death, control all of your assets, and prevent the court from controlling your assets if you become incapacitated.
How does a living trust avoid probate and prevent court control of assets at incapacity?
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 the trust dated MMDDYY.”
Legally, you no longer own anything, everything now belongs to your trust. So there is nothing for the courts to control when you die or become incapacitated. The concept is 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 and 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 attorney, trust officer, financial adviser and insurance agent can help. Typically, you will change titles on real estate, stocks, CDs, bank accounts, investments, insurance and other assets with titles. Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
Some beneficiary designations (fore example, insurance policies) should also 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 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.
For your free consultation contact us today.