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When a person passes away with more than $150,000 in gross assets owned in their name (versus being owned within their living trust), the probate court process is required.  This process involves delays and costs of up to 8% of the value of these assets.  "Gross assets" include the value of each property owned, even if a property has a mortgage against it that might drastically reduce the actual "value" of the asset.  Thus, even if a person has a $400,000 mortgage against a property worth $420,000, probate court will be required because it is the full $420,000 value of the property itself that determines whether probate is required.  This may seem unfair and illogical, but it's the law.

Putting ownership of property into a living trust ensures that it will be transferred at death by contract without the necessity of probate court.  The process of transferring assets under a living trust is simpler and less stressful than the probate court process and can be completed in far less time. For the typical person or married couple with more than $150,000 in gross assets, a living trust is likely to save the designated beneficiaries thousands of dollars in expenses. 

After death, the successor trustee, the person designated to execute the trust, transfers the assets pursuant to the instructions given within the living trust document.  This is accomplished without any court involvement, making
the process far simpler. Typically, the successor trustee is directed to transfer all assets immediately. The distribution terms of a living trust are similar to the distribution terms that most people associate with a will.

Besides avoiding court involvement in the distribution process, a living trust also includes a safety mechanism to ensure that the successor trustee performs as directed. If any family member believes that the successor trustee is not complying with the distribution terms of the living trust, that family member still can use Probate Court to challenge the successor trustee’s distributions.

A living trust also allows a husband and wife to coordinate their estate planning in a manner that cannot be accomplished by two wills. With the help of a qualified attorney, a husband and wife can very easily create a joint living trust by which their survivor or survivors will receive all assets and by which a distribution plan will be locked in after the first spouse passes away to ensure that distributions to children and beneficiaries are preserved as was intended during both spouses’ lifetimes.  A husband and wife should thoroughly discuss the specific terms of distribution with their estate planning attorney. 

Some ouples might wish to leave everything to the surviving spouse, while other couples might desire to ensure that other family members, charities, etc., will receive at least some of their property upon the first spouse's death.  For further information on this topic, see the "MARRIED COUPLES" link on the left side of this page.

A living trust offers a person every opportunity that the common will offers, including all of the property distribution options.  However, a living trust also provides a lot more: cost and time savings as described above, as well as a more convenient method for creating complex distribution terms.  Relative to a living trust, a will is limited and requires more time and expense.

If I set up a living trust, am I giving up control over my assets?

No, setting up a living trust does not require you to give up any control of your assets.  By setting up the living trust, you will transfer ownership of your assets to yourself and you will hold your assets as trustee on behalf of the living trust. This sounds more complex than it actually is.  You are merely taking advantage of the legal device known as a trust, but your living trust will be set up such that you will own all of your assets in your own name and have entire control over the assets and any proceeds, income, or appreciation earned on each asset. The living trust documents will note that the assets of the living trust are to be used solely for your benefit during your lifetime, and you will have the ability to do anything you want with these assets in the same way that you could prior to setting up your living trust.  

The key is that, officially, the assets are owned by the trust, which means they are not included in your estate when you pass away. This allows your estate to avoid Probate Court. But because you as the trustee of your own trust own, control, and reap all benefits of the assets, you can carry on as you always haveafter setting up and funding your living trust but with the knowledge that your control assets will be protected after your death.  Bank accounts and other financial accounts will need to be changed so that they are officially owned by you as trustee. Of course you will still have full control over these accounts. You likely will not even need to get new checks printed—they will still have only your name on them. 

Does a living trust protect my assets from creditors?

No. There are some forms of living trusts that may be able to insulate assets from creditors; however, control over these assets must be completely given up to a separate person and the assets may not be used for your benefit under the terms of the trust. Because your living trust will provide you with full enjoyment and power over your assets, your creditors will have the same access to your assets they would have in the absence of the trust in the event that they try to collect a debt from you.

After I set up a living trust, what do my attorney and I need to do?

The creation and signing of living trust documents will establish the living trust.Once your trust is established, you will need to formally transfer ownership of your assets to yourself as trustee of your living trust. Again, you will still enjoy all ownership rights over these assets after they are transferred to your living trust.  Some types of property, such as real property, require a formal transfer.  A deed must be prepared and recorded that will say something like this:

I, David Barnier, hereby assign all ownership rights I have in the property located at 123 Elm Street to David Barnier, Trustee of The David Barnier Living Trust.

Other assets may be transferred to the living trust by a simple written memorandum that will be kept with the person’s estate planning documents. The memorandum may look something like this:

I, David Barnier, hereby assign all of my personal belongings to David Barnier, Trustee of The David Barnier Living Trust.

What is estate tax (aka "death tax") and how might a living trust help ensure that my assets are transferred to my beneficiaries without estate tax being owed?

As of 2012, estate tax is imposed upon any amount owned by the deceased person that exceed $5,120,000.  Without a strategically prepared living trust and proper implementation of estate tax planning, a person or couple owning more than $5,120,000 in assets may end up having to pay estate taxes of 35% of the amount in excess of $5,120,000 to the government.  

For those of us unconcerned with the prospect of passing away while owning over $5,120,000 in assets, there is potential concern regarding the estate tax law changes that will go into effect in 2013, when the $5,120,000 threshold will change to $1,000,000 and require 55% of the amount of assets in excess of $1,000,000 to be paid in estate tax before the beneficiaries receive any inheritance. Luckily, there are well-established strategies that provide protection with flexibility and convenience.  With a living trust, several basic mechanisms can be set up that will allow estate tax to be avoided. These mechanisms, which have been developed over many years, involve terms that take advantage of the spousal exemption on transfers to a spouse as well as the use of irrevocable bypass trusts that insulate assets from estate tax.  A qualified attorney can explain how each person or couple can take advantage of these terms for their unique needs.

What happens if I set up a living trust but do not make sure that my assets have been transferred to my living trust?

Any assets not transferred to the living trust remain a part of the person’s estate. If the assets in the person’s estate add up to less than $150,000, Probate Court is still avoided.  It is common for a person to maintain some assets in their own name. A “pourover will” is always included with a living trust.  A pourover will provides that assets remaining owned in the person’s name (as opposed to the living trust) will be willed to the person’s living trust at death and then distributed along with the other trust assets on the same terms set forth within the living trust.  This, like the other strategies discussed above, can be explained in more detail when each person or couple discuss their living trust needs with a qualified attorney.

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