Creating a living trust is a good option for those who want to protect estate assets and transfer them after death. This strategy helps loved ones avoid having to endure an estate and simplifies probate settlement procedures.
As with most estate planning methods, there are advantages and disadvantages to using a living trust. The main advantage is that the fiduciary property is exempt from probate, which reduces the possibility of the will being challenged.
The downside is the time and expense involved in financing the trust. Financing involves transferring ownership of the assets to the trust. Any type of titled property must have a new title issued in the name of the trust. This is also true for life insurance policies and bank accounts.
Additionally, each time assets are bought, sold, or transferred, the trust must be updated to reflect the changes. This translates into additional document filing and registration fees. That said, probate costs generally equal the same or more, but offer less protection.
The reasons for avoiding succession are many. Not only is the process costly and time-consuming, but estate assets cannot be transferred to beneficiaries until all aspects of probate are complete. If complications arise that extend the duration of the probate, this could lead to a depreciation of the value.
Another concern is that family members can challenge a probate and claim assets that were not bequeathed to them. This results in having to hire an attorney to solve the problem. Since legal expenses are paid by the estate, there is the possibility of a forced sale to cover the costs associated with the litigation.
While a last will and testament can speed up the probate process, it does not offer any protection if guardianship is required. If a person is incapacitated due to physical or mental conditions, their family will have to go to court to become a legal guardian. This status allows them to make financial decisions and manage the living arrangements for beneficiaries until they are able to make sound decisions.
A living trust can be used to appoint a conservator to handle personal affairs. Instead of having to hire an attorney and appear in court, the appointed conservator can begin with the necessary arrangements.
A conservator plays a different role than a trustee. Trustees are assigned to manage the assets in the trust and handle probate liquidation procedures.
One source of confusion often comes from the terminology used with trusts. The person who owns the property and establishes the trust is known as the Settlor. The people who oversee the trust are trustees. Most of the time, the Settlor is also the Trustee until death.
Upon death, a successor Trustee performs the tasks necessary to reconcile the estate and transfer the assets to the designated beneficiaries. Appointing a successor trustee is especially important for married couples using a joint trust.
As mentioned above, trusts are financed through the transfer of property and financial assets. If the trustees do not fund the trust in accordance with state law, the estate will have to go through a probate process.
In addition to establishing living trusts, individuals must develop a comprehensive estate plan consisting of a last will and power of attorney forms. Wills are needed to transmit assets that are not included in the trust. Power of attorney forms allow others to handle certain tasks for you if you are unable to do so.
The best approach is to get help from an estate planning law firm. Attorneys can offer guidance on the best type of strategies for your personal circumstances and ensure that all documents are legally binding.
