Frequently Asked Questions About Living Trusts

 Posted on November 07, 2022 in Estate Planning

When thinking about an estate plan, most people are under the false assumption that a Trust is only meant for the extremely wealthy. This is in fact not the case. Many people can benefit from having a Trust in their estate plan. 

What is a Trust?

A Trust is a legal instrument that holds title to certain property and is subject to certain obligations, rights, and restrictions that are put in place by the Trustor. The Trustor is the person or persons who create the Trust. A living Trust means that, for the duration of the Trustor’s life, the Trust is for the benefit of the Trustor, and will only pass to the beneficiaries upon the Trustor’s death. This also means that the initial Trustee (the person who is in charge of managing the Trust) will also be the Trustor.

What is the difference between a Revocable and an Irrevocable Trust?

A Trust can be made revocable or irrevocable at the decision of the Trustor. If the Trustor creates a Revocable Living Trust, then they are able to amend or revoke the Trust at any time during their life, even after the Trust is signed. A Revocable Living Trust will be made irrevocable upon the death of the Trustor. An Irrevocable Trust is a Trust that cannot be amended nor once it is signed by the Trustor. The Trustor does not even have the power to amend or revoke the document once it is signed into being. 

If I am Married, do my spouse and I need different Trusts?

One can choose to establish a Single Trust or a Joint Trust. In a Single Trust, there is only one Trustor who serves as both the primary beneficiary and Trustee. A Joint Trust, which is often-times used by married couples, occurs when both spouses are Trustors, primary beneficiaries, and Co-Trustees of the Trust. A Joint Trust works best when both spouses have shared assets and do not do business separately, but as a unit. 

The decision of a Joint Trust or Single Trust depends on the particular facts surrounding the marriage. If both spouses share assets and operate together, then a Joint Trust would be most effective. A Single Trust would be most effective if the spouses have children from a prior marriage and would like to leave their estate to different people from the other spouse.

Why is a Trust better than a Will?

A Trust is more beneficial than a Will for many reasons. Most importantly, a Trust is more cost effective and efficient in creating a seamless transition upon death. Once a Trust is created, the property is placed into the Trust at the onset, meaning that, upon the death of the Trustor, their property is already a part of the Trust and can be distributed according to the terms of the Trust. A Trust is also more cost effective than a Will because, if properly funded, the Trust makes it so that the Trustor’s estate does not have to pass through Probate. This will save both time and money when it comes to distributing the estate upon death. 

What is Probate?

Probate Court is a legal system that the deceased person’s estate must pass through if the person passes with either a Last Will and Testament (a will) or if they die without any estate planning documents, otherwise known as “intestate.” The purpose of Probate Court when the person dies intestate is to monitor the transfer of the person’s estate to the person’s heirs, in accordance with state law rather than the person’s wishes. If a person dies with a Will, that document needs to be authenticated by Probate Court, and the listed Executor must be authorized to pay expenses and distribute estate according to the Will.

Even though a person may have a validly executed Will as part of their estate planning documents, Probate Court is still required and is commonly time consuming and costly due to required court costs and attorney’s fees needed to properly close and distribute the estate. Typically, attorney’s fees for Probate range between $2,500-$5,000 but can be more depending on the size and complexity of the particular estate. Attorney’s fees are independent of court costs, such as filing fees and other fees required by the Court. 

If I have a Trust, will I avoid Probate?

A Trust can avoid Probate so long as it is properly funded and all steps are followed. When a Trust is created, any real estate will be transferred into the Trust’s name via a Quit Claim Deed in Trust. It is imperative to properly fund the Trust, which means renaming any bank and savings account as the Trust’s name, and properly allocating the Trust as the beneficiary of any Life Insurance Policies. 

Accompanied with a Trust is a Pour Over Will, which accounts for any assets not properly transferred to the Trust during the Trustor’s life. The Pour Over Will states that all of the property of the deceased person is to be put into the Trust. There will still be a Probate process to do so, but it is much quicker than going through Probate Intestate or without a Trust in place. 

Experienced Estate Planning Attorneys in Kendall County

Estate planning is strongly encouraged for all individuals, regardless of the size of the estate. As seen above, if there is not a proper plan in place at the time of death, the loved ones responsible for closing the estate will be put through a costly, time-consuming, and very emotional process. By planning ahead of time, a proper estate plan can protect future beneficiaries, reduce the amount of taxes taken by the IRS at the time of transfer, and can eliminate family disputes that can arise when closing the estate intestate. Hiring effective and experienced estate planning attorneys is critical to know that you are making the best decisions for yourself and your family, as well as following all state laws in the process. At Peace of Mind Asset Protection, LLC, we have the proper knowledge and experience to assist with the best estate planning options for you. We offer in-person, virtual, and home consultations free of charge. Contact us today at 630-780-1034 or contact us via email.