How a Living Trust works?
A Living Trust is a legal document created during a person’s lifetime that defines how his or her assets will handled during his or her lifetime and how they will be distributed after that person’s death. It can avoid the substantial expense and time commitment of probate of the estate in the courts. With a Living Trust, the successor trustee manages the trust estate after the person dies or becomes incapacitated.
Why a Living Trust is needed?
Let’s take the example of a widow who dies without a living trust, who owns real estate and has three adult children. The children seek to sell the real estate but their realtor informs them that they cannot sell the property without an order of the probate court. The children hire an attorney to probate their mother’s estate, and his fees and expenses cost them several thousand dollars of their inheritance. The children may learn that the probate process takes much longer than they thought. And, if they do not sell the property soon, they may have to pay increased fees to their attorney while the probate case remains open. That may pressure the children into selling the real estate for less money than if they had the ability to wait for a higher offer.
Does a Living Trust avoid probate?
If the deceased’s assets were properly titled in the name of the living trust, during his or her life, then the assets would avoid probate. The trust owns the assets that are titled to the trust, and the trust survives the deceased. So, because the trust lives on, the trust assets do not have to be probated. However, assets that were not titled in the name of the trust may have to be probated.
Is a Living Trust revocable or is it irrevocable?
Most Living Trusts are set up to be revocable during the lifetime of the person(s) who set up the trust. Irrevocable trusts are not as common and are used where the persons setting up the trust have very high dollar estates.
What is a Living Trust vs. a Will vs. a Power of Attorney?
A Living Trust holds title to a person(s) property during his or her life, and after death for the term specified in the trust. A will does not control property until the person creating the will dies. A Power of Attorney allows one person to give another person the right to make specific decisions and financial transactions on their behalf if the person setting up the Power of Attorney becomes disabled.
Can a Living Trust protect assets
Living Trusts can be effective to protect assets from the creditors of trust beneficiaries, often children of the person setting up the trust. If drafted properly, the trust can hold the parent’s assets for the benefit of the children, and make it difficult for the children’s creditors to reach the assets. Living Trusts are less effective at asset protection against creditors of the person setting up the trust. Federal bankruptcy laws, medicaid laws, and other lawsuits have often been able to “pierce the veil” of so-called asset protection trusts. However, there are some steps that can be taken to limit creditors in their efforts to attach the parent’s assets.
Gary D. Rappard Attorney at Law © 2006