When people plan their estates, one favored mechanism used by estate planning experts is to transfer assets is a “Revocable Living Trust.” You certainly don’t have to be incredibly wealthy to significantly benefit from setting up a revocable living trust. It is a useful tool in most estate situations where there are six figures of wealth to distribute.
Not only does it create ease and efficiency, it actually removes the effective tax associated with probating an estate because you’re avoiding attorneys fees, court costs and sometimes even dueling expert witness fees. A trust works when the person that you have selected to be the trustee (normally you and/or your spouse while you’re alive) holds property for a beneficiary (normally you and/or your spouse are the initial beneficiaries). There can, of course, be multiple beneficiaries. Trusts can be set up while you’re alive (a method we prefer because it avoids judicial intervention, public disclosure, and significant time delays associated with dealing with the court system) or as a function of your will after your death. Since the living trust is revocable, it allows you to keep full legal control of your property during your lifetime.
Why Use a Trust?
The advantage of setting up a trust during your lifetime is to avoid the costs, attorneys fees, delays, and public disclosure of information through the probate process. A will does not protect you during lifetime incapacity either. For instance, if you were to contract mental illness or be subjected to a physical injury which prevents you from making decisions regarding your assets, your loved ones or creditors would actually petition a court and prove your incompetency when seeking to appoint a person to control your assets who you have not selected. A revocable living trust allows you to select trustees to serve during lifetime incapacity without the requirement that you be adjudicated incompetent.
If you have assets of less than $50,000, then you qualify as a small estate and the “short form” probate process will be fairly simple. If, however, you have more than $50,000 of assets, you may want to consider bypassing the judicial system by forming a revocable living trust. While Minnesota has adopted the Uniform Probate Code, which deals with filing and handling an estate, most estates we deal with would benefit from the streamlined process of creating a trust during your lifetime and bypassing the probate court/judicial system.
A good attorney will help you to understand if you can get by with a simple will or whether you really need to consider a revocable living trust. They will also assist you in drafting other estate documents necessary (i.e. durable power of attorney, pour over will). A “pour over will” is needed since, even if you set up a living trust, you’ll want a will to provide a backup for any assets that don’t make it into the trust.
A simple living trust does not avoid the Federal estate tax, however, more complicated forms of trusts can help reduce the tax bill. These trust are generally useful when you have assets and life insurance proceeds which exceed $2,000,000.
What’s Involved in Creating a Trust?
As with any legally binding contract (which is what a trust essentially is), you want to seek advice of qualified legal professionals. Understand that some lawyers may actually recommend that you consider a will because the fees associated with the probate are substantially more than the creation of a revocable living trust. Challenge the attorney as to why they’re making the recommendation for a will versus a revocable living trust. In addition to creating and signing the trust documents, you’ll also need to transfer all assets you want in the trust into the legal ownership of the trust.
For assistance with these decisions, turn to the lawyers at Virtus Law Firm. We can help review your assets, discuss you goals, and craft the best estate plan for you. Give us a call today at 612.888.1000 send us an email at firstname.lastname@example.org to set up an appointment.