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Understanding Living Trusts Probate is the legal process through which your debts are paid and your assets are distributed according to your will. In New York, a will is probated in the Surrogates Court, which oversees the distribution of the assets contained in your probate estate. To those who have not experienced probate, it is difficult to explain just how frustrating it can be to all involved Probate can last anywhere from 9 months to 2 years. 2.Why is probate so expensive? Probate is expensive because it is extremely time consuming.
Legal/executor fees and other costs must be paid before your
assets can be fully distributed to your heirs. Generally, your family has no privacy. Probate is a public
process and any "interested party" can see what you
owned at your death. A living trust is a legal document that contains your specific
instructions as to what should happen to your assets when you
die. Unlike a will, a living trust generally avoids probate at
death as the trust controls its own assets - not the court. 5. How can a living trust avoid probate and prevent court intervention? After setting up a living trust, you transfer assets from your name to your trust. As trustee, you fully control your assets. Although as trustee you control the assets, you no longer legally own the assets, the trust does. This is why probate is avoided for assets transferred to the trust; there is nothing for the courts to control when you die or become incapacitated. Although this concept is relatively simple, not enough estate
plans include a living trust. 6. How do I transfer assets into the trust? Transferring assets into your revocable living trust is not difficult but it will take time. However, you can do it yourself now, or have your estate pay an attorney and the surrogates court to transfer your assets at a later date. The living trust will only help avoid probate for assets transferred to the trust. Any assets still held in your name will be subject to probate.
As Trustee, you retain full control of all
assets contributed to the trust and you can do anything you could
do before the transfer, such as buy and sell assets. Also, since
the trust is revocable, you can change the terms or even cancel
the entire trust. It is relatively easy to change the terms of
the trust and it is not normally recommended that the trust be
cancelled, as it would defeat the original purpose for which it
was intended. Generally, in your trust document, you will appoint both you and your spouse are co-trustees. Each of you concurrently has full control over the assets. If something should happen to either you or your spouse, the other would be able to assume full control over the assets. If something happens to both of you, or if you are the only
trustee, a "successor" trustee, selected by you in your
trust, will assume control over the trust. If the trust did not
exist, your family would have to hire an attorney and commence a
legal action for a guardian to be appointed. 9. What is a successor trustee? If you are the sole trustee of the trust, or if a co-trustee has also become incapacitated or has passed away, your trust instrument will contain a provision for a successor trustee, usually a child or someone younger than you. Generally, if you become incapacitated or die, your co-trustee assumes full control over the trust. If the co-trustee has also become incapacitated or passed away, the successor trustee will assume control over the trust. The successor trustee's term will depend on the situation. If you have passed away, the trustee will dispose of the assets according to your wishes, or manage the trust assets. If you are temporarily incapacitated, the successor trustee will only manage the trust assets until you are no longer incapacitated. Keep in mind that if the above events occur and you did not
have a living trust or did not transfer your assets into the
trust, the courts would become a necessary party to any and all
proceedings and a legal guardian would be appointed to manage
your affairs, rather than your handpicked "successor
trustee". 10.What happens to the trust when I die? Depending on the provisions in your trust, the trust can
either distribute the assets to your beneficiaries, or the assets
can remain in your trust, managed by the successor trustee you
have chosen, until your beneficiaries reach a specific age before
they can inherit your assets. 11.What is the difference between a living trust and a living will? A living trust pertains to your financial
affairs while a living will pertains to certain medical decisions
(Health
Care Proxy) regarding treatment that
you want to be made, in case you become incapacitated. 12. At what age should I create a living trust? Age should never be a factor in the decision to create a living trust. Death or incapacitation can arise at any time and unfortunately cannot be planned for.
Yes, but you should only hire an attorney with considerable knowledge in living trusts and estate planning. It is very important that your trust be set up properly as there are many pitfalls to be avoided.
Your Revocable Living Trust will only affect assets that you have transferred to it. Since it is always the case that some assets have not been transferred, you need a will to catch those assets. Your will is generally a pour over will, which simply transfers assets that you owned at death to your living trust. Thereafter, the living trust, which you executed years ago, will distribute your assets the way you specified. If you do not provide in a will how you want your assets to be disposed of, your assets will be distributed according to the law of the State where you are domiciled. (See "What if I die without a Will") Keep in mind that any assets not transferred to the trust will have to go through probate. Generally, if you have a living trust, you can provide that your will distribute any forgotten assets to the trust. 15. How expensive is a Revocable Living Trust? The cost of a Revocable Living Trust is "insignificant" when compared to the cost of probate. In New York, probate fees vary from between 4% - 8% of your estate. By creating a living trust, you are doing all of the work in advance, and ensuring that it is done according to your wishes. You are also giving a wonderful gift to your family, who will not have to experience probate and can wind up your estate in a very short time, as opposed to somewhere between 9 months to 2 years if your will had to go through probate. (See probate flowchart) 16. If my will creates a trust, is it the same as a living trust? No, a living trust is created while you are still alive and the trust holds legal title to your assets. As trustee you control the assets but you do not individually own the assets, which allows your assets to pass directly to your family/friends without going through probate, since you technically do not own the assets on your date of death. A trust created in your will is called a testamentary trust. Any assets passing from your will into the trust must pass through probate. Also, if you become incapacitated, your testamentary trust does not take affect, since you are still alive. Thus, a testamentary trust does not provide any benefits of the living trusts, such as avoiding probate and avoiding court and attorney fees in the event you become incapacitated. A testamentary trust is generally used in case some beneficiaries are minors or to minimize estate taxes. 17. Doesn't joint ownership accomplish the same goals as a living trust? No, Joint ownership does not accomplish any of the goals that a living trust would. First, joint property still passes through probate. Second, if you become incapacitated, the court will become involved to represent your interest in the property. Third, creditors of either joint owner can seize jointly owned property. Also, joint ownership can lead to the $675,000 exemption not being fully utilized. Although joint tenancy is a popular way to hold property, it is very dangerous and can often lead to disastrous results. 18. Doesn't a durable power of attorney accomplish the same goals as a living trust ? No, a durable power of attorney allows someone to manage your affairs when you become incapacitated. Many institutions will not accept durable power of attorneys unless their forms were used. A durable power of attorney is very effective when used in conjunction with a living trust. Also, a durable power of attorney does not have
any affect on probate. 19. What happens if I become incapacitated without a living trust Simply put, you will not receive any of the
benefits listed below in question 20. 20. Summary of the benefits of a living trust. • Significantly reduces the cost of probate. • Keeps your affairs private as probate is public. • Avoids court control over your assets in the event of incapacity. • Allows you to choose who manages your assets in the event of incapacity. • Beneficiaries receive assets much quicker (probate usually lasts 9 months - 2 years. • Forces you to develop an overall estate plan. • Inexpensive and easy to set up and maintain. • Can be changed or revoked at any time. • Knowledge that your loved ones will not have to go through the rigors of probate. • Can help to reduce estate taxes and avoid the pitfalls of joint ownership. • Visit our Acclaimed Estate Planning Education
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