As many people know, creating a living trust is the preferred method for ensuring that your heirs can avoid the costly and lengthy process of probate in the event of your passing. As an example, if your home or business has a gross value of $1 million dollars and both joint owners have passed on, your heirs may have to pay up to $50,000 in probate, attorney and executor fees and may have to wait 12-24 months for the probate to be resolved. Even with a valid will, the estates of homeowners and/or business owners, with a gross value over $100,000, will be subject to the probate process if those assets are being passed to someone other than your spouse. These types of assets are subject to probate because, unlike a financial account of life insurance, an heir can’t be named for these assets beyond any joint owners. If you create a living trust to own these assets, you can save your heirs the costs and delays of probate.
A living trust is similar to a will in the sense that you, as creator of the trust, decide upon your passing who and under what conditions your heirs will take ownership of your assets. You may place conditions that your heirs must meet in order to receive assets from your estate. At the time of your passing, your appointed trustee will use the living trust document to transfer your estates assets to your heirs or will oversee your assets on behalf of your heirs. Your trustee does not need to hire an attorney or go to court to affect the transfers and thus the trust can be wrapped up in weeks instead of years. During your lifetime, you maintain full control of the assets owned by the trust and you can revoke or change the terms of the trust at any time. Ownership of assets by your living trust, changes very little in the way you deal with these assets on a day to day basis and will not trigger any additional taxes.
If you are a business owner, placing your ownership interests into a living trust can ensure a timely transfer of your interests to your heirs upon your passing. If your heirs plan to takeover the business, they can act to quickly transfer ownership to themselves and keep your business up and running. If your business can not continue, your heirs can sell the business in a timely manner before much of its value has been dissipated. Either way, a living trust can help ensure that your business is not tied up in probate for years as well as avoiding the significant cost of probate.
The key to drafting a good living trust is not only setting up the trust so that your assets will pass to your heirs without the need for probate is to make sure that your trust addresses potential issues that may arise upon your passing. These contingencies include what happens to the family home (will it be sold or kept), how will personal assets be divided up amongst the heirs, what happens if a beneficiary has a substance abuse problem, or how to make sure your heir’s inheritance does more good than harm. Your trust can be designed not only to continue to impart your values on to your heirs by encouraging certain types of behavior ( i.e. getting a college education) but can also protect the assets you designate for your heirs from their creditors, divorces and lawsuits. Hiring a good estate planning attorney is key to creating these contingencies in your trust.
A living trust is the core component of a good estate plan which typically also includes a pour-over will, a durable power of attorney and an advanced health directive. By properly creating these documents ahead of time, you can save your loved ones the costs and hassles of having to hire an attorney or going to court to manage or transfer your assets if you pass on or become incapacitated. Unfortunately, we often don’t know when something might happen but with a little advance planning, your heirs will not be burdened with the hassles of not having a plan.
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