The two major living-trust purposes are to (a) avoid probate costs and delays for your heirs after you die, and (b) management of your living-trust assets by your successor trustee if you become incapacitated, such as by a severe stroke or Alzheimer’s disease.
A living trust is “funded” by transferring title for your real estate and other major assets, such as stocks, bonds, mutual funds, etc., into your living trust to hold title within the trust. At the creation of the living trust, you are the living-trust trustor (principal and creator), trustee (manager) and beneficiary of the living-trust assets. That means you still have 100 percent control over your living-trust assets.
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But your living-trust document should also name a “successor trustee,” or even several successive trustees, such as a spouse, parent, adult son or daughter, niece, nephew, trusted friend, or bank trust department, to take over if you become incapacitated or die.
1. WHO MAKES ASSET MANAGEMENT DECISIONS FOR ME IF I BECOME INCAPACITATED BUT I DON’T HOLD TITLE TO MY ASSETS IN A LIVING TRUST? If you become incapacitated and unable to manage your business affairs, only a court appointee can sign documents and make other major business management decisions for you.
If you have no close relatives or friends willing to serve as your conservator, the county or city Public Guardian may be appointed by the court to look after and even sell your assets to pay for your care. Unless you want a government employee stranger making major decisions about your assets, I suggest you create a revocable living trust now and “fund” it with your major assets, including title to your real estate. This will prevent the court from supervising management of your assets after you become incapacitated.
2. HOW MUCH DOES IT COST TO HAVE AN ATTORNEY PREPARE A LIVING TRUST? Costs vary widely depending on the state where the attorney practices. I’ve seen ads for Florida living trusts as low as $395 and $495. But a more realistic price is $1,000 to $2,500 for a relatively simple living trust. However, if you have a substantial estate, spending even $5,000 to $10,000 for a husband and wife to establish separate or joint living trusts, with A-B by-pass trusts if total assets exceed $3 million, is money very well spent.
The modest attorney fees to establish a living trust are very small compared to probate legal fees. The attorney’s services for creating your revocable living trust the way you want it should also include (a) writing a “pour-over will” for you (and your spouse) and (b) transferring title to your real estate into your living trust. A “pour-over will” is usually very simple because its primary purpose is to state who you want to receive any assets you forgot to transfer into your revocable living trust.
Please remember that unless the titles to your real estate are deeded (usually by quit claim deed) into your living trust, you have an “unfunded” worthless living trust. Be sure you and your attorney finish creating your living trust by deeding real estate assets into your living trust.
EXAMPLE: Suppose you inherit a property from a distant relative but you didn’t receive the deed before you die. That inherited real estate wasn’t in your living trust when you passed on, so the terms of your pour-over will determine who receives any assets not in your living trust. However, such assets will have to go through probate court proceedings because they were outside your living trust and subject to your will.
3. WILL MY HEIRS GET A STEPPED-UP BASIS ON LIVING-TRUST ASSETS? Yes. Holding titles in your living trust, especially for real estate, won’t deprive your heirs of a new “stepped-up basis” to market value on the date of your death after the asset is distributed by your living-trust successor trustee.
4. HOW SOON AFTER MY DEATH WILL MY HEIRS OR MY NAMED CHARITY RECEIVE MY ASSETS? Your successor trustee, named in your living trust, can distribute the assets to the individuals and/or charities named in your living trust as soon as he or she desires after your death. Usually, it is prudent to wait at least 30 to 60 days to determine if there are any unpaid debts that must be paid before distribution of living-trust assets.
But there is no need to delay, as is customary with probate court proceedings, the normal six to 18 months. The sooner the assets can be gathered and distributed, the lower the costs such as for home mortgage interest, property taxes, etc., for your estate, and the more assets your heirs and charities will receive.
5. CAN I CHANGE MY LIVING-TRUST BENEFICIARIES? Yes. You can amend or even completely revoke your living trust at any time before you die or become incapacitated. To illustrate, if you decide you don’t want a living-trust beneficiary to receive a named asset, such as your house, you can amend your living trust to specify who you want to receive that asset instead. However, if you sell a living-trust asset during your lifetime, the living-trust beneficiary named to receive it upon your death won’t receive any substitute asset.
6.DOES MY LIVING TRUST BECOME PUBLIC AFTER MY DEATH? No. Privacy is a major advantage of your living trust. By comparison, your will becomes public knowledge after you die when it is submitted to the local probate court for distribution of your assets according to the terms of your will. Although a few states have provisions allowing registration of a living trust, there is no penalty for failure to do so.
7. CAN A HUSBAND AND WIFE BE LIVING-TRUST CO-TRUSTEES? Yes. A major advantage of co-trustees is, if one becomes incapacitated, the other can act and have instant control. To illustrate, if title to your home is held in your joint or common living trust, but you die in a plane crash, your co-trustee can sell, refinance or otherwise manage that living-trust asset. If both co-trustees die or become incapacitated, it is smart to name a successor trustee, or a corporate trustee, such as a bank trust department, to manage and distribute assets according to the terms of the living trust.
8. DOES MY LIVING TRUST “DIE” WHEN I DIE? Not necessarily. You can specify in your living trust that after your demise, the successor trustee shall manage the living-trust assets until a specified event occurs, such as your children become a certain age (such as 25 or 30) to receive your assets. Or, your living trust can provide continuing management to provide for care of a handicapped child or an elderly parent.
9. IF I HAVE LESS THAN $600,000 NET ASSETS DO I STILL NEED A LIVING TRUST? Yes. I don’t know how the widespread rumor got started that if you have less than $600,000 net assets you don’t need a living trust. But it is not true.
Anyone who owns real estate or significant assets exceeding their state’s “small probate avoidance estate limit” (usually $30,000 to $100,000) needs a living trust to avoid probate costs and delays.
(For more information on Bob Bruss publications, visit his
Real Estate Center).