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What are the advantages of a Living Trust?

by Geri Epstein
http://www.documentsusa.com

Nine Advantages of a Living Trust

Nbr. Advantage Description
1 Avoids Probate When your assets donít go through probate, they pass more quickly to your heirs and beneficiaries and they are not diminished by the costs of probate.
2 Flexibility A Living Trust is flexible in that it can be easily changed to meet any changing circumstances in your life.
3 Privacy A major advantage of a Living Trust is that the details of the Living Trust remain completely private. Neither the assets nor the beneficiaries become a matter of public record. So the only people beside you who need to know the details of your trust are the trustees and the beneficiaries. However, you should be aware that some states require you to register your trust with the courts. You should research your state laws to determine if this is true for your state. If you must register your trust, some of the privacy advantage is lost.
4 Control Perhaps the most appealing aspect of a trust is that you have complete control over managing your assets while you are still alive. You can manage them yourself or hire others to manage them on your behalf. In a Living Trust, your instructions govern how your assets are managed whereas in a will the courts may impose restrictions on how your executor manages and distributes your assets.
5 Orderliness With the majority of your assets in one location, your Living Trust, your family often has an easier time locating and identifying your assets after your death.
6 Contestability It is harder for a disgruntled heir to contest a Living Trust than a Will.
7 Disability If you should become disabled through a stroke, senility or some other form of mental incompetence, you avoid a court-appointed guardian if you have a revocable Living Trust. The person the court appoints to manage your affairs may not be the person you would choose. In addition, the process of appointing a guardian is both lengthy and costly. With a Living Trust, one of your trustees would step in to manage your affairs until you recover.
8 Out-of-State Properties A Living Trust is valid in all states so you donít need to change it if you move to comply with new state laws. In addition, any property owned in more than one state avoids probate. With only a Will, you would have to start probate in every state in which you owned property.
9 Continuation of Business When you transfer your assets of a business into a Living Trust, a trustee can step in and continue to manage the business, which is often a needed source of income for the family should you become disabled or upon your death. So there is no disruption in operation.

What are the disadvantages of a Living Trust?

Six Disadvantages of a Living Trust

Nbr. Disadvantage Description
1 No Income Tax Savings A Living Trust neither avoids nor saves any taxes while you are alive. You will be taxed on all the income the trust earns. During your life, you will file these taxes as part of your personal tax return. After you die, the trust will pay taxes as its own entity on any income over $600 and generally at a higher rate than you paid as an individual.
2 No Estate Tax Savings Should your estate exceed the value of the unified credit ($1,000,000 in 2002), you will owe federal estate taxes on both probate and non-probate assets. If this describes your situation, then consult a tax professional to learn about ways to eliminate your tax liability.
3 More Complex and
Expensive Than a Will
A lawyer would charge you much more to create a Living Trust than a will (about $2,000 vs. $400) so it initially more costly to set up. The hardest part of setting up a Living Trust if you create a Living Trust yourself, is transferring your property to the trust. Once you have transferred your assets, you will need to maintain the trust records apart from the records of any personal assets you own.
4 No deadline of
claims for creditors
Probate imposes a limit on the time that creditors may presents bills to your executor while a trust does not fall under the same guidelines. Thus a possibility exists that a creditor could sue a trust or its beneficiaries for money long after your death, even after the trust ends.
5 Does not avoid creditor
claims during your life
If you maintain control over your assets in a trust, the courts could force you to pay your creditors with assets from your trust. If you set up a trust to avoid paying creditors, the courts will consider the transfer of assets fraudulent and you could incur a fine in addition to having to pay the creditor.
6 Does not eliminate
the need for a will
A will can name a guardian for your children, name the executor of your probate estate and state that the executor does not need to be bonded. You may have some last minute assets that you did not transfer to your trust. These assets will need at least a pour-over will to provide for transferring them to the trust. If you do not a will to cover these circumstances, you will be considered to have died intestate, and must follow the probate laws for your state under that condition.
 

Six Ways to Transfer Assets to a Living Trust

Nbr. Property Transfer Process
1 Automobile Contact Department of Motor Vehicles for correct form to change title certificate to reflect trust as owner.

Contact your automobile insurance company to change the owner of your policy.
2 Real Estate Execute a new deed to you as trustee as the grantee of the property.

If you have a mortgage on your property, you generally need permission of the mortgage company to change your deed.

Contact your fire and casualty insurance company to change the name on your policy to that of the trust.

Check your state laws to determine if your state grants a homestead exemption. Generally, a homestead exemption is available only for individuals, not for trusts. But there are exceptions.
3 Bank Accounts Retitle your checking and savings and other accounts you have at financial institutions to show your name as trustee, the name of the trust and the date the trust was created.
4 Registered stocks
and bonds
Contact your stockbroker to register any stocks and bonds that you own. You may need to surrender your certificates and have the reissued to your trust. The stock brokerage firm may require a power of attorney to accomplish this task.

Have all new stocks and bonds titled in the name of the trust.
5 Life Insurance Change the beneficiary of your life insurance policy to be the name of your trust.
6 Retirement Plans Contact a professional to determine whether you should transfer your retirement plan to a trust.
Disclaimer:  The information provided in this article is general information on the legal issues presented and should not be regarded as a  substitute for legal advice from an attorney. Geri Epstein is not an attorney and DocumentsUSA is not a law firm.

The above article is presented as a community service by www.sandiegolawyerforyou.com with the permission of the author.

 


 

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