Living Trust Frequently Asked Questions
A General Overview of Revocable Living Trusts
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What is a living trust?
A trust is an agreement under which one person, called a trustee, holds the legal rights to property for another person, called a beneficiary. Ideally, you can be the trustee of your own living trust and have full control over all property held in the trust. A living trust (also called an “inter vivos” trust) is a trust you make while you’re alive, instead of one that is created at your death with the terms of your will. There are different kinds of living trusts that can help you avoid probate, reduce estate taxes, and set up long-term property management.
Do I need a living trust?
If you are like most people, it is a great idea. The biggest advantage to creating a living trust is that property left in the trust doesn’t have to go through probate court before it gets to the people you want to inherit it. Basically, probate is the government’s supervised process of paying your debts and taxes, thus distributing your property to the people who are to inherit it.
A Trust is also effective the day you sign it.
How does a living trust avoid probate?
Property you transfer into a living trust prior to your death will not go through probate. The successor trustee, the person you choose to handle the trust at your death, simply transfers ownership to the beneficiaries you put in the trust. In most cases, the whole ordeal takes only a few weeks. When all property has been transferred to the beneficiaries, the living trust simply goes away.
Is it a hassle to hold property in a living trust?
Making a living trust work for you does require some critical paperwork. For example, if you want to leave your house through the trust, you must create and sign a new deed, showing that you now own the house, within the trust, as a trustee. This paperwork can be burdensome, but I can make it quite easy and hassle-free, so that you can focus on other things and give you one less stress to worry about.
Is a living trust document ever made public, like a will?
No. A will is a matter of public record only when it is submitted to a probate court, as well as the other documents associated with probate, such as calculations of the deceased person’s assets and debts. The terms of a living trust do not need to be made public.
Does a living trust protect property from creditors?
No. A creditor that wins a lawsuit against you could still go after the trust property, just as if you still owned it under your name. After your death, a property in a living trust can be quickly and easily distributed to the beneficiaries (unlike property that must go through probate). By the time creditors find out about your death, it is likely that your property has been dispersed, and the creditors may not know exactly what you owned (except for real estate, which is always a matter of public record). It probably would not be worth the creditor’s time and effort to find the property and demand that the new owner(s) use it to pay your debts.
On the contrary, probate can also offer some kind of protection from creditors. During probate, creditors must be notified of the death, thus given a chance to file claims. If they miss the deadline, there is nothing they can do.
If I make a living trust, do I still need a will?
Yes, you do. A will is a back up for property that you don’t transfer into your living trust. For instance, if you acquire property just a short time before you die, you may not always think to transfer ownership of it to your trust. This means that it won’t pass under the terms of the trust document. However, in your back-up will, you can include a clause that states someone will be given any property that you haven’t left to a particular person or entity in the trust. If you do not have a will, any property that wasn’t transferred to your living trust or other probate-avoidance object, (such as joint tenancy) will go to your closest relatives in an order decided by state law. These laws may not distribute property in the way you would have liked or wanted.
Can a living trust reduce estate taxes?
One tax-saving living trust that we can do is designed primarily for couples with children. It is referred to as an AB trust, though it goes by many other names, including a “credit shelter trust,” “exemption trust,” and several others. Each spouse leaves property, in the trust, to the other for life, and then to the children. This kind of trust can save you up to hundreds of thousands of dollars in estate taxes and that savings will be passed on to the your final inheritors. Now, why would anyone let all that go to waste?
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Law Offices of Christopher A. Benson, PLLC
60 E. Rio Salado Parkway, Suite 900 – Tempe, AZ 85281
(602) 892-4682 | Map | Reviews
