There are many kinds of trusts, including trusts created by Wills (called "testamentary trusts") and trusts created during your lifetime (either revocable or irrevocable, and called "living trusts" or "inter vivos" trusts). Both kinds of trusts are long-term arrangements where a manager (called a "trustee") invests and manages assets for someone (called a "beneficiary") on the terms you specify. Trusts are quite complicated, and are quite often used to avoid probate costs and expenses, to avoid taxes, to ensure privacy, to provide for the management of your assets, or to provide for the management of assets for a beneficiary, such as a minor, who you believe could not or would not prudently invest and use assets.
MAJOR BENEFITS OF LIVING TRUSTS The benefits which living trusts give are many, some of which exist regardless of the state of one’s health, and regardless of the extent of one’s wealth, although those and other factors are often considered in determining whether or not to create a living trust. Basically, the major advantages are as follows: The Probate Process; Avoidance of Probate Living trusts are perhaps first thought of and best known for their high degree of avoidance of the probate process. Probate is a court supervised process whereby the court first assures that all of a decedent’s valid debts are paid, and then that a decedent’s assets are transferred to the person who under the law is entitled to the asset. To understand the concept of probate, first think of an asset which you own in your own name alone, such as your car. It’s ownership is represented by a title issued to you, with your name on it as the legal owner, by the State Department of Motor Vehicles. When you die, somehow, the State Department of Motor Vehicles has to be legally directed to transfer the title to the car from you to the person you desire to have the car. The probate process does this, and results in a court order finding that your debts have been paid, that your beneficiaries are the owners of your assets, and directing their transfer accordingly. The importance of probate, and of living wills, is that only assets which you own in your own name alone go through probate. Some assets, such as jointly held assets with a right of survivorship (which automatically go to the last survivor of the joint owners), or life insurance or retirement plans pass outside of probate. Other assets do not, however. If these assets are placed in a living trust, though, the assets are owned under the terms of the trust, not by you alone, and they also pass outside of probate. Thus by placing your assets in a trust, to a large extent you can avoid all of the time, trouble, anxiety, and expense of a probate proceeding. This factor alone is quite often the primary factor in some people’s decision to create a living trust, as probate expenses are generally between 3% and 6% or your estate, and avoidance of probate often results in significant savings for one’s heirs. Relief from Financial Routine; Temporary Absences With a living trust, the trustee assumes responsibility for all the important but routine duties involved in the protection and care of the assets and securities in the trust. It is both easy and costly to fail to sell stock promptly, to overlook stock rights, misplace assets, and so on. If you reach a point in your life at which you no longer desire to mind all of your property and financial affairs, then if you have formed a living trust, you have the ability to transfer that responsibility to the successor trustee whom you have named in your Trust Agreement. In addition, if you desire to temporarily be relieved of such matters, such as when you take an extended trip and desire to assure that someone is minding your assets, then you have the ability to appoint your successor trustee to do so, and resume the trusteeship of your trust when you return. Unfortunately, any one of us may eventually suffer from illness, forgetfulness, or some sort of incapacity or incompetency, whether temporary or permanent. If one hasn’t provided for such circumstances in advance, by means of a trust, durable power of attorney or otherwise, then it may be necessary to go through a court procedure, under an act called the "Baker Act", to have that person legally declared incompetent, and a court appointed guardianship established. Such an incompetency action is often difficult, expensive, and most importantly hurtful and misunderstood by the person who is asserted to be incompetent. If one has established a living trust, however, the trust instrument is drawn with the Settler having nominated a successor trustee, and having specified the circumstances under which the successor trustee takes over the administration of the trust. A "Baker Act" procedure can then be avoided, and you can rest assured that you have in advance provided for any possible period of incompetency - you appoint the person who is to supervise your assets, that is, your successor trustee, not a court. If you recover competency, then you can of course resume your duties as trustee. The trust thus provides the peace of mind of knowing that in any circumstance, you and your assets will be properly taken care of. Coordination of a Whole Estate Plan Your attorney, in designing your living trust, will coordinate it with your overall estate plan. This will assure continuing protection and management for you and your beneficiaries in the years to come. In short, he or she will make your living trust part by taking into consideration your needs and desires, those of your beneficiaries, your assets, and the manner in which you hold your assets.
Incompetency Protection
For more information regarding trusts, please contact us at (904) 264-0585.
