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Is a Living Trust for You?

On a regular basis, you probably receive invitations by mail and by telephone to “living or revocable trusts” or “estate planning” seminars. Maybe you’ve seen notices in the newspapers about them, too. One of their big selling points is “avoid probate.” Certainly, there are times when a living trust is a recommended document but there are probably an equal numbers of times that a trust is not recommended. Hopefully, we can provide you a more complete picture of living trusts.

First, we need to define “living trust.” A living trust is a written agreement established by an individual during his or her life time, hence the term “living trust.” The term “revocable” means just that, the trust can be revoked or changed during the grantor’s lifetime. Upon death of the grantor, the trust become irrevocable, meaning it cannot be changed. The person establishing the trust is the grantor or settlor. The grantor contributes the assets to be owned by the trust, this is called “funding the trust.” The trustee is the administrator for the trust. Most of the time the grantor is the original trustee. The beneficiaries are the individuals who receive benefits from the trust.

The trust specifies how the trustee is to operate the trust, who are the beneficiaries and when distributions are to be made to the beneficiaries.

The question arises, why have a trust? It is a way for a successor trustee to immediately take over and handle your affairs if you become disabled or unable to handle them. A word of caution, assets MUST be transferred into the trust for it to work right. In reviewing clients’ old documents, Ray has found trusts that were never funded. Having a trust with out assets is futile.

One frequent question, “Do I still need a will?” Yes, a will is acted upon only on death while a trust can be administered during lifetime. Sometimes a “pourover” will is prepared. This is when assets owned outright by you and are not distributed by the will, pour over to the trust and are subsequently distributed according to the terms of the trust. There are some items such as the homestead that probably shouldn’t be owned by a trust.

A frequently used phrase in advertisements is “avoid probate.” Probate is not a dirty word. Probate is a legal proceeding which serves a distinct purpose, it provides for the matters of the deceased person to be taken care with a definite end and closure to bills, claims, taxes and distributions to beneficiaries.

Another misconception is having a living trust will save taxes. Wrong answer, during the grantor’s lifetime, all the income and benefits go to the grantor; therefore, the I.R.S. treats the trust as though it doesn’t exist for tax purposes. However, there are other kinds of trusts created for people having in excess of $600,000 which would be beneficial tax wise.

So, you say, Is a living trust for me? It depends upon the circumstances and what you want to accomplish. Every situation is different. Before you decide, seek legal counsel, discuss your specific situation and then decide, make an informed decision. It you have a living trust, have it because it’s right for you

What is Probate?

The word “probate” comes from Latin meaning “to prove.” Probate is the process of distributing your property, after your death, to the people named either in your will or as set forth by state statutes if you have no will.

Is formal probate always necessary? No, if all property is jointly owned and there are no assets in the deceased person’s name, formal probate is not required. In this case the will can be filed with the probate clerk in the county in which the deceased resided. A death certificate should also be recorded. A non-taxable certificate should be obtained from the Dept. of Revenue and also recorded in the Clerk’s office. This makes the death a public record.

There are also some abbreviated probate proceedings such as Summary Administration and Disposition of Personal Property Without Administration but there are very specific criteria to be followed in using these procedures.

Formal probate is for estates with non-exempt assets of more than $75,000 and/or when it is necessary to appoint a representative to act on behalf of the estate. It requires that the original will be filed with the probate court along with other paperwork. Probate includes naming a personal representative, informing effected parties such as beneficiaries and creditors that probate has been started, obtaining values on the assets, paying creditors, taxes and fees, preparing accountings, distributing property to beneficiaries, filing tax returns, and finally closing the estate. Frequently a surety bond is required on the personal representative, the amount varies with the size of the probate estate. The person filing the petition for formal administration must be represented by an attorney.

Summary Administration may be filed when the value of the entire estate subject to administration does not exceed $75,000 or if the decedent has been dead for more than two years. No personal representative is appointed.

A Disposition of Personal Property Without Administration may be filed to request a release of the deceased’s solely owned assets to reimburse the person who paid the final expenses; funeral bills, medical bills for the last 60 days. This process does not typically involve the hiring of an attorney. The disposition form and instructions for Pinellas County can be found on the Clerk’s website.

What is probate property? Property that is titled in your name alone. Property owned jointly without a right of survivorship. Life insurance payable to your estate, not another person or organization. Certain assets such as the decedent’s homestead may be exempt from the claims of creditors but must still pass through probate in order to pass title to the intended beneficiaries.

The time necessary for probate varies from case to case. It could be as short as six months or as long as several years.