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Consider a Living Trust

Consider a Living Trust to Control Your Assets and Avoid the Probate Process

By Don Drake, Connelly Law Offices, Ltd.

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Attorney RJ Connelly III

"Watching court shows and murder mysteries on television all discuss the importance of finding a will, but in many cases," said professional fiduciary and certified elder law Attorney RJ Connelly III. "As discussed in previous blogs, a will does not avoid probate upon your death. The probate court must validate the will before it can be enforced. Further, a will does not offer protection if you become physically or mentally incapacitated. In such cases, the court could take control of your assets before you pass away, which is a major concern for many older Americans and their families. In such cases, it is important to consider a living trust."

To avoid this from happening, there is an alternative to a will called the revocable living trust. It avoids probate and allows you to maintain control of your assets while you are still alive, even if you become incapacitated, and after you pass away.

The Probate Process

Probate is the legal process in which the court ensures that your debts are paid and your assets are distributed according to your will when you pass away. Your assets are distributed according to state law if you do not have a valid will.

Probate Can Be Costly

"Before your assets can be distributed among your heirs, it is essential to take care of certain expenses such as legal fees, executor fees, and other associated costs," said Attorney Connelly. "If you own property in different states, your family may have to go through multiple probate processes governed by that state's laws. These costs can vary significantly, so I strongly advise you to research and find out the exact costs to avoid any surprises as the process draws out."

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Probate can be very time consuming -- and costly

Probate is Time-Consuming

"Probate typically spans a considerable amount of time, ranging from nine months to two years, and sometimes even longer in more complicated cases," stated Attorney Connelly. "During this period, the deceased person's assets are usually frozen to facilitate an accurate estate inventory. The executor or the court must approve any distribution or sale of assets. This can make it difficult for the family to access funds during this period. In case of any urgent financial needs, the family may request a living allowance, which may or may not be granted. The bottom line is it can turn very messy."

Probate is a Public Process

"During this process, all the deceased person's assets and debts are made public, meaning that anyone considered an 'interested party' can access this information," points out Attorney Connelly. "This includes details about what the person owned, who they owed money to, who will inherit their assets, and when they will receive them. This public exposure can create opportunities for disgruntled family members to contest the will and for unscrupulous individuals to take advantage of the situation."

Joint Ownership Can Be a Problem

"When you own an asset jointly with someone else, it could impact the probate process," stated Attorney Connelly. "In most cases, when one owner dies, the surviving owner gets full asset ownership without probate. However, if both owners die simultaneously or the surviving owner neglects to add a new joint owner, then the asset must go through the probate process before it can be passed down to the heirs."

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Joint ownership could impact the probate process

There are other concerns to consider when adding a co-owner. One of the primary risks of joint ownership is that you could lose control over the asset. Additionally, there is an increased risk of being sued or losing the asset to a creditor. There may be tax implications, such as gift and income taxes, and your family might get disinherited since a will does not control most jointly owned assets. For some assets, like real estate, all owners must sign to sell or refinance.

"If a co-owner becomes incapacitated, the court may become involved, even if the incapacitated owner is your spouse," said Attorney Connelly. "If you become mentally or physically incapacitated, only a court appointee can sign on your behalf, even if you have a will, and once the court becomes involved, it usually stays involved until you recover or pass away, and it, not your family, will control how your assets are used to care for you."

Benefits of a Living Trust

"A living trust is a legal document that, like a will, outlines your desires for what should happen to your assets when you pass away," said Attorney Connelly. "Unlike a will, a living trust can bypass probate at the time of your death, giving you control over all your assets and preventing the court from taking control of your assets in case you become incapacitated."

"When you establish a living trust, you transfer ownership of your assets from your name to the name of your trust, which you control," he continued. "For instance, you would transfer assets from 'Henry and Sally Jones, husband and wife' to 'Henry and Sally Jones, trustees under trust dated September 2024'. By law, you will no longer own anything; everything will belong to your trust. Therefore, the courts will not need to control your assets when you die or become incapacitated. The idea is quite straightforward, but it keeps you and your family out of the courts."

Am I Losing Control?

"Quite simply, no. As a trustee of a living trust, you remain in control and can carry out any actions you would have had the authority to do before creating the trust," Attorney Connelly stated. "This includes such things as buying and selling assets, modifying, or even completely revoking the trust. Hence, it's called a revocable living trust. Your tax returns will remain the same; the only change will be the names on the titles."

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As trustee, you remain in control

To transfer assets into the trust, you can seek assistance from your attorney, trust officer, financial advisor, or insurance agent. You will typically need to change the titles of your assets like real estate, stocks, CDs, bank accounts, investments, and insurance policies. The trust can also include personal items such as jewelry, clothes, art, and furniture.

Changing beneficiary designations on insurance policies to the trust is also crucial. This ensures that the court cannot control them if a beneficiary is incapacitated or deceased upon your passing. However, some assets like IRA or 401(k) may not require this change.

Choosing Trustees

If you establish a trust, you can act as its trustee. However, you may also choose to have a corporate trustee, such as a bank, elder law Attorney, or trust company, act as your trustee or co-trustee. This is particularly helpful if you do not have the time, ability, or interest to manage your trusts or if you or your spouse become ill. Corporate trustees are experienced in managing investments, are impartial and dependable, and have reasonable fees.

"If you and your spouse are co-trustees, either one of you can act and assume control if one becomes incapacitated or passes away," Attorney Connelly points out. "If you both pass away and are the only trustee, your personally selected successor trustee will take over. If a corporate trustee is already serving as your trustee or co-trustee, they will continue to manage your trust on your behalf."

Successor trustees can be individuals, such as adult children, other family members, or trusted friends, or they can be corporate trustees. If you choose an individual, it is vital to name additional successors in case your first choice cannot act.

What Happens When I Pass

"Unlike a will, which only takes effect after your death, a trust can be active for extended periods, ensuring that your beneficiaries receive their inheritance only when you want them to," stated Attorney Connelly. "A trust can be beneficial if you have a loved one with special needs or want to protect your assets from creditors, spouses, or future death taxes. By setting up a trust, you can ensure that your assets are used to benefit your loved ones without being lost to taxes or other costs."

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Setting up a trust offers multiple benefits

If your estate's net value exceeds the "exempt" amount at the time of your death, your estate may be subject to federal estate taxes. In addition, your state may also have its own death or inheritance tax. However, if you are married, you can use your living trust to combine both exemptions, saving significant money for your loved ones.

A will can also create a testamentary trust to save estate taxes and provide for minors. However, since it is part of your will, this trust cannot become active until you pass and your will is probated. Therefore, it does not avoid probate or provide any protection in case of incapacity.

A Pour-Over Will

"'I cannot highlight enough the importance of developing a comprehensive estate plan that ensures your assets are distributed according to your wishes after you pass away," said Attorney Connelly. "Your estate plan needs to include a "pour-over" will, which acts as a safety net for any assets you may have forgotten to transfer to your trust. If you forget to transfer an asset to your trust, the will catches the asset and sends it into your trust upon your death."

Even if an asset must go through probate, it can still be distributed as part of an overall living trust plan. It's also critical that you name a guardian in the will who will be responsible for the care of minor children in the event of your sudden death.

A Final Thought

"Regardless of your age, marital status, or wealth, if you possess titled assets and wish to protect your loved ones - whether it's your spouse, children, or parents - from any legal intervention upon your incapacity or death, it's highly recommended to establish a living trust," stated Attorney Connelly. "You may also consider advising your other family members to set up a living trust to shield them from court intervention in the case of their incapacity or passing. This way, you can ensure that your family's assets are protected and distributed per your wishes without the legal hurdles."

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Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.

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