Frequently Asked Questions – Trusts & Estate Planning
(Click on a question, the answer will appear below)
I have a will. Why would I want a living trust?
Contrary to what you’ve probably heard, a will may not be the best plan for you and your family-primarily because a will does not avoid probate when you die. A will must be verified by the probate court before it can be enforced.
Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets before you die-a concern of mil¬lions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will-the revocable living trust. It avoids probate, and lets you keep control of your assets while you are living-even if you become incapacitated-and after you die.
What is probate?
Probate is the legal process through which the court sees that, when you die, your debts are paid and your assets are distributed according to your will. If you don’t have a valid will, your assets are distributed according to state law.
What’s so bad about probate?
It can be expensive. Legal/executor fees and other costs must be paid before your assets can be fully distributed to your heirs. Costs vary in each state, but are usually estimated at 3-8% of an estate’s value. If you own property in other states, your family could face multiple probates, each one according to the laws in that state.
It takes time, usually 9 months to 2 years. During part of this time, assets are usually frozen so an accurate inventory can be taken. Nothing can be distributed or sold without court and/or executor approval. If your family needs money to live on, they must request a living allowance, which may be denied.
Your family has no privacy. Probate is a public process, so any “interested party” can see what you owned and who you owed. The process “invites” disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.
Your family has no control. The probate process determines how much it will cost, how long it will take, and what information is made public.
Doesn’t joint ownership avoid probate?
Not really-it usually just postpones it. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs.
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner”-the court-even if the ill owner is your spouse.
Why would the court get involved at incapacity?
If you can’t conduct business due to mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), only a court appointee can sign for you-even if you have a will. (Remember, a will only goes into effect after you die.)
Once the court gets involved, it usually stays involved until you recover or die. The court, not your family, controls how your assets are used to care for you. This public process can be expensive, embarrassing, time consuming and difficult to end if you recover. And it does not replace probate at death-your family could have to go through the court system twice!
What is a living trust?
A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids probate at death, can control all of your assets, and prevents the court from controlling your assets at incapacity.
Does a durable power of attorney prevent this?
A durable power of attorney lets you name someone to manage your financial affairs if you are unable to do so. However, many financial institutions won’t honor one unless it’s on their form. And, if accepted, it may work too well-giving someone a “blank check” to do whatever he/ she wants with your assets. It can be very effective when used with a living trust, but risky when used alone.
How does a living trust avoid probate?
…and prevent court control of assets at incapacity?
When you set up a living trust, you transfer assets from your name to the name of your trust, which you control-such as from “Bob and Sue Smith, husband and wife” to “Bob and Sue Smith, trustees under trust dated 1/1/xx.”
Legally you no longer own anything (don’t panic: everything now belongs to your trust), so there is nothing for the courts to control when you die or become incapacitated. The concept is very simple, but this is what keeps you and your family out of the courts.
Do I lose control of the assets in my trust?
Absolutely not. You keep full control. As trustee of your trust, you can do anything you could do before-buy/sell assets, change or even cancel your trust (that’s why it’s called a revocable living trust). You even file the same tax returns. Nothing changes but the names on the titles.
Does the total value of your assets exceed $20,000.00?
If the total value of you and your spouse’s estate exceeds more then $20,000 dollars your estate could end up in probate for years.
For full details contact Lifeline Estate Services or please read the full Nevada probate code.
Is it hard to transfer assets into my trust?
No, you and your Estate Planner, trust officer, financial adviser and insurance agent can help. You need to change titles on real estate (in- and out-of-state) and other titled assets (stocks, CDs, bank accounts, other investments, insurance, etc.). Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
Also, beneficiary designations on some assets (like insurance) should be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401(k), etc. can be exceptions.)
Doesn’t this take a lot of time?
It will take some time-but you can do it now, or you can pay the courts and attorneys to do it for you later. One of the benefits of a living trust is that all your assets are brought together under one plan. Don’t delay “funding” your trust. It can only protect assets that have been transferred into it.