4. What’s the difference between having a Will and a Living Trust?
A Will is a legal document that describes how you want your assets distributed at death. The actual distribution however is controlled by a legal process called probate, which is Latin for “prove the Will.” Upon your death, the Will becomes a public document available for inspection by all comers. And once your Will enters the probate process, it’s no longer controlled by your family, but by the court and probate attorneys. Probate can be cumbersome, time-consuming, expensive, and an emotional trauma in a family’s time of grief and vulnerability. Con artists and others with less than pure financial motives have been known to use their knowledge about the contents of a will to prey on survivors. A Living Trust avoids probate because your property is owned by the trust, so technically there’s nothing for the probate courts to administer. Whomever you name as your “successor trustee” gains control of your assets and distributes them exactly according to your instructions. There is one other crucial difference. A will doesn’t take effect until you die, and is therefore no help to you with lifetime planning, an increasingly important consideration now that Americans are living longer. A Living Trust can help you preserve and increase your estate while you’re alive, and offers protection should you become mentally disabled.
5. The possibility of a disabling injury or illness scares me. What would happen if I were mentally disabled and had no estate plan or just a will?
Unfortunately, you would be subject to “living probate,” also known as a conservatorship or guardianship proceeding. If you become mentally disabled before you die, the probate court will appoint someone to take control of your assets and personal affairs. These “court-appointed agents” must file a strict accounting of your finances with the court. The process is often expensive, time-consuming and humiliating.
6. If I set up a Living Trust, can I be my own trustee?
YES. In fact, most Living Trusts have the people who created them acting as their own trustees. If you are married, you and your spouse can act as co-trustees. And you will have absolute and complete control over all of the assets in your trust. In the event of a mentally disabling condition, your handpicked successor trustee assumes control over your affairs, not the court’s appointee.
7. Will a Living Trust avoid income taxes?
NO. The purpose of creating a Living Trust is to avoid living probate, death probate, and reduce or even eliminate federal estate taxes. It’s not a vehicle for reducing income taxes. In fact, if you’re the trustee of your Living Trust, you will file your income tax returns exactly as you filed them before the trust existed. There are no new returns to file and no new liabilities are created.
Now that we’ve been able to answer more of your estate planning questions, what other questions do you have that you’d like answered? Are there other topics you’d like to hear about more in-depth?
Comment on our article on Facebook, or send us an email at email@example.com and we will do our best to address your topics in future news blogs. Remember to check out part one of the series on Estate Planning too!