A Living Trust is legal instrument created to manage your assets during your lifetime and distribute the remaining after your death. This kind of trust is generally considered revocable since you can make changes to the trust or terminate it during your lifetime as long as it is compliant under the law.
II. Who is a Trustee?
The person responsible for managing the trust assets is called the “trustee”. In a Living Trust, you may serve this role or you may appoint another individual or bank to serve as a trustee. You may also designate a successor trustee in case something were to happen to the initially appointed trustee. Although the trustee can be practically anyone you like, designating a trustee is extremely important and should be selected with much caution, as the responsibilities are serious and should not be taken lightly.
III. What are some of the responsibilities of a Trustee?
While many of the trustee’s responsibilities are spelled out in the Living Trust, some of the responsibilities the trustee may have are distributing the assets of the Living Trust to the beneficiaries, paying claims and taxes, prudently investing the trust assets, keeping records of the trust transactions, and making tax decisions regarding the Living Trust. While there may be many more tasks and responsibilities as the trustee, this only demonstrates that being a trustee is not necessarily an easy or simple position. An important consideration to remember is that the Living Trust itself should allow the trustee to hire qualified professionals to assist them such as qualified attorneys and accountants with appropriate experience.
IV. What are a few benefits of having a Living Trust?
A. It May Speed Up Probate Administration And May Even Help You Avoid Probate
Going through probate is the first step in the process of administering the estate of a deceased person. This process can be an extremely lengthy, exhausting, and expensive. It can tie up your property for months or even years. Probate may be minimized or eliminated entirely with a Living Trust. A Living Trust may help you avoid going through the entire probate process by allowing the direct transfer of assets during your lifetime to the trustee. The trustee is given immediate authority to manage the assets placed in the trust upon your death and therefore the appointment by the court is unnecessary and saves time and money for your family. There may also be a greater likelihood that your heirs will then receive a more timely disbursement of your estate. This benefit alone is enough motivation to get a well-drafted Living Trust.
B. It May Protect Against Creditors of Beneficiaries
The trust assets are not protected from the claims of your creditors in Florida. Since the assets in a Living Trust during your lifetime are treated as if you owned them in your personal name they will still remain subject to claims. However, the interests of the beneficiaries may be protected from their creditors by a “spendthrift” provision in the Living Trust if the trust assets remain in the trust after your death. Situations vary greatly, so it is important to consult with an experienced attorney regarding the types of assets that provide creditor protection.
C. It Allows You To Be In Control of Your Assets
A great benefit of a Living Trust is that you can control the assets of what goes into your Living Trust during your life time and you can gain better control over what happens to your assets after your death as well by selecting a trustee of your choice, the beneficiaries of your choice and how you would like the trust assets quickly disbursed to the beneficiaries after your death. During your lifetime, you can do practically what you want with the trust assets by transferring some assets in and out of the trust and add properties as you see fit. You may designate yourself as the trustee to retain complete control of the trust during your lifetime and appoint successor trustees to carry out your wishes.
V. How important is “funding” the Living Trust?
The “funding” part is probably the most important aspect of creating a Living Trust. If you do not properly fund the Living Trust with assets with the correct new titles, you may need both a probate administration for those assets not properly funded in the Living Trust as well a trust administration to completely distribute the assets. This could lead to a much more costly ordeal than if you never had a Living Trust in the first place.
VI. If I have a Last Will and Testament, do I really need a Living Trust too?
A Last Will and Testament is never a substitute for a Living Trust and vice versa. However, there are distinguishable advantages of having a Living Trust over a Last Will and Testament such as reducing the time significantly or completely when dealing with probate administration, allowing you to control the assets placed in the Living Trust throughout your lifetime, and protecting the interests of your spouse and children after your death. Nevertheless, the Living Trust may not completely avoid probate depending on the types of assets you have, so a “pour over” Last Will and Testament may be needed to transfer any probate assets to the Living Trust after your death. In fact, depending on your circumstances, ideally, a Last Will and Testament and a Living Trust should be created simultaneously to take advantage of the benefits of both legal instruments.
There is no such thing as a "one size fits all" type of Living Trust in reality. In some cases, there are situations where a Living Trust is not even necessary or appropriate. A Living Trust is just one kind of the many trusts one can create to manage their assets and protect the interests of their family. While the topic of trusts is complex and various factors should be considered based on each situation, consulting a knowledgeable attorney and tax professional is imperative to help advise you as to what kind of trust suits your specific needs. It is important to be proactive about your future and working with the right professionals is the first and most important step you can take to effectively control the management of your assets.
Disclaimer: This article is not intended to be legal advice. Legal advice depends on each and every person's particular circumstance. This article is for informational purposes only and must not be used for avoiding any penalties that may be imposed under the Internal Revenue Code. Arora Law Firm and Radhika Arora, Esq. specifically disclaim any responsibility for positions taken by readers in their individual cases or for any misunderstanding on the part of readers of this article.
Copyright 2012 by Arora Law Firm. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without prior written consent of Arora Law Firm.