I get quite a few questions from my clients about trusts. There are many kinds of trusts that can be used for many different purposes, including:
- setting aside and protecting assets for minor children
- protecting assets for someone in need of long-term care due to a physical or mental illness (special needs trust)
- avoiding probate
- protecting assets from your beneficiaries creditors (even a possible future ex-spouse)
- minimizing taxes
It is helpful to have a basic understanding about what a trust is. I describe a trust as a legal box. Once it is created, you can put assets into the box to control them. You can create one in your will, in which case it would be called a testamentary trust, or you can create it now, while you are alive, in which case it would be called a living trust, or, sometimes, an inter-vivos trust. A trust that can be changed is called revocable. One that can’t be changed is called irrevocable. For more information about irrevocable trusts, click here.
Do you need a Living Trust?
Revocable Living Trusts
A revocable living trust is a legal document that holds title or ownership to your real property and assets. When you create a revocable living trust you transfer ownership of your assets to the trust, but you do not transfer or lose control over those assets. You can still transfer, sell or borrow against assets in your trust. A properly designed and funded revocable living trust can be used to avoid probate, which can be expensive and time consuming. A revocable living trust does not avoid estate taxes, and even though the probate process may be avoided, in Glastonbury, Hartford and all of Connecticut, you still need to pay probate fees.
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Why would I want to set up a Revocable Living Trust?
Well, the most common reasons for setting up a Revocable Living Trust and funding it (putting assets into the name of the trust) are:
- Avoidance/Reduction of Probate and Estate Administration Costs and Delays. Assets in the trust don’t have to go through the probate process to be distributed, saving save time and legal fees associated with the probate process.
- Easy Control Over Assets in the Event of Incapacity. The trust can provide for management of the trust assets by a person you can select if the grantor becomes incapacitated through physical disability, incompetency, etc.
- Privacy Regarding Beneficiaries and Dispositions. Upon your death, the Will is filed in the probate court, and becomes available to the public and, more and more, is posted online through the court website. A living trust agreement is typically not filed in the court system and does not become a public record.
- Continued Property Management After Death. The trust provides management of the trust assets both before and after the grantor’s death.
- Avoidance/Reduction of Litigation. It is more difficult for an unhappy heir to contest a revocable living trust than a Will. During the probate of a Will, the heirs must be given written notice of their opportunity to contest the Will. A trust is not subject to this requirement.
Revocable Living Trusts have become extremely popular in recent years, however, like everything else, they are not for everyone. If you own property in different states, or if you have a family business that you intend to pass on to your heirs, perhaps a revocable trust is right for you. However, if your estate is small and your children are grown up and reliable, you can often accomplish the same goal of avoiding probate associated with revocable living trust without the time, complexity and expense associated with creating one. That said, a Revocable Living Trust is a great way to allow a trusted person who you pick to handle your affairs if you become incapacitated.
If you would like to learn more about whether a Revocable Living Trust might be right for you, contact us.