Living Trusts FAQs
When a loved one passes away, his or her estate often goes through a court-managed process called probate or estate administration where the assets of the deceased are managed and distributed. If your loved one owned his or her assets through a properly drafted and funded Living Trust, it is likely that no court-managed administration is necessary. The length of time needed to complete probate of an estate depends on the size and complexity of the estate as well as the rules and schedule of the local probate court.
Every probate estate is unique, but most involve the following steps:
- Filing of a petition with the proper probate court
- Notice to heirs under the will or to statutory heirs (if no will exists)
- Petition to appoint Personal Representative (in the case of a will) or Administrator for the estate
- Inventory and appraisal of estate assets by Personal Representative/Administrator
- Payment of estate debt to rightful creditors
- Sale of estate assets
- Final distribution of assets to heirs
A properly drafted Revocable Living Trust (RLT) is a powerful estate planning tool that allows you to remain in control of your assets during your lifetime, have them managed during incapacity, and efficiently and privately transfer them to your loved ones at death according to your wishes.
Sometimes referred to simply as a Living Trust, an RLT holds legal title to your assets and provides a mechanism to manage them. You would serve as the trustee and be the sole beneficiary of your trust during your lifetime. You also designate successor trustee(s) to carry out your instructions for how you want your assets managed and distributed in case of death or incapacity.
The fact that the Living Trust is “revocable” means that you can make changes to it or even terminate it at any time.
Like a will, a Living Trust is a legal document that provides for the management and distribution of your assets after you pass away. However, a Living Trust has certain advantages when compared to a will. A Living Trust allows for the immediate transfer of assets after death without court interference. It also allows for the management of your affairs in case of incapacity, without the need for a guardianship or conservatorship process. With a properly funded Living Trust, there is no need to undergo a potentially expensive and time consuming public probate process. In short, a well thought out estate plan using a Living Trust can provide your loved ones with the ability to administer your estate privately, with more flexibility and in an efficient and low-cost manner.
Creating a Revocable Living Trust and transferring your assets to the name of that trust does not affect your ability to control such assets. During your lifetime when you are mentally competent, you have complete control over all of your assets. As the trustee of your trust, you may engage in any transaction that you could before you had a Living Trust. There are no changes in your income taxes. If you filed a 1040 before you had a trust, you can continue to file a 1040 when you have a Living Trust. There are no new Tax Identification Numbers to obtain. Because a Living Trust is revocable, it can be modified at any time or it can be completely revoked if you so desire. Upon your incapacity, the individuals you designate will be able to transact on your behalf according to the instructions you have laid out in the Living Trust. Upon your passing, the Living Trust can no longer be modified and the successor trustee(s) you have designated will then proceed to implement your wishes as directed.
Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your living trust as long as you continue to live in that home. The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does not provide for such protection for residential real estate with more than five dwelling units.