What Is A Trust?
There are many different documents included in an estate plan. One item you may have heard of is trust. While this term is common, you may not know what a trust is and what the different types of trusts do. At Urban Thier & Federer, P.A., our attorneys will take the time to answer your questions and help you build a comprehensive estate plan.
A trust can provide many potential advantages, including the avoidance of potentially expensive and time-consuming probate administration.
The primary trust types include:
- The living trust
- The revocable trust
- The irrevocable trust
A trust is typically part of a comprehensive estate plan and is tailored to meet each client’s individual need.
Living Trusts: Your Key To Avoiding Probate
Urban Thier & Federer has experience in administering living trusts. Living trusts have many advantages for the individual. Besides avoiding probate, a living trust may eliminate gift taxes. A living trust may be considered separate property and may not be subject to equitable distribution in the event of marital separation. Similar to a will, a living trust specifies what will happen to your estate after your death. Urban Thier & Federer can assist you by drafting a living trust to meet your specific needs and wishes.
When a person dies and has assets listed in his or her name, it can seem like a simple task to transfer those assets to the surviving heirs. It is the nature of ownership that makes this task a bit more complicated. True, the heirs will eventually get the assets they were intended to receive, but the process takes time and involves a probate procedure. Many clients associate the word probate with long delays in getting their will verified by the court. This is true as it does take time for the court to confirm that your will is valid and authorize the disbursement of your assets.
Another feature of probate that is less commonly known is that it makes your business public. What goes through probate, i.e., the courts, is public record. Many clients are surprised by this fact. The public’s access to such private information is sometimes beyond comprehension. This can be avoided by creating a living trust. Here, you transfer the ownership of the assets into the names in the trust; the owners of the trust assets are called trustees and are determined by you. The names of your beneficiaries and the list of assets you own, such as your house and your financial accounts, are all kept secret. Upon your death, or that of your spouse, who is also an owner of the living trust, the surviving members can continue to use the assets therein, and there is no waiting period or need to go through the courts as you would with a regular will.
There is more good news. If you decide to add or remove assets, like a home or retirement account to the trust, this can be done without involving the courts. It is no surprise that more and more couples and families are taking advantage of this estate planning option.
What about estate taxes? Can a living trust help me avoid paying estate taxes? We often get this question asked by clients, and the answer must be broken down into parts. A living trust, frequently referred to as a revocable living trust, can help you avoid probate, meaning that your surviving spouse and beneficiaries (your children, for example) can have access to your assets immediately upon your death. However, you still have ownership of your assets in the trust, so your estate will be subject to normal estate taxation beyond the exemption amount that we will discuss later in this article.
Our firm can provide consultation on drafting and administering a revocable trust. A revocable trust is a trust that may be revoked or amended during the grantor’s lifetime. After the grantor’s death, the property is passed on to the beneficiary or beneficiaries. Once this occurs, the revocable trust becomes irrevocable.
More on revocable living trusts: Living trusts were designed to give clients flexibility in planning their estates. While still alive, you and your spouse can place all your assets into a revocable living trust – you no longer own the assets but the trust does. This arrangement is made quite practical in that each spouse typically appoints the other one as successor trustee. When the first spouse dies, the surviving spouse or “successor trustee” automatically has the authority to manage those assets without involving the courts. Frequently, spouses appoint one another since each one will likely manage those assets with the same goals in mind. It avoids probate and distributes your assets more quickly to the beneficiaries. The goal of avoiding probate in this case is met.
But what about estate taxes? It is important to point out here that although this revocable trust scenario can successfully avoid probate for those assets placed into it, it will not avoid estate taxes for those assets in excess of $5.4 million ($10.9 million for married individuals). Why not? The IRS claims that the individual or married couple (trustees) still have control over the assets in some form and therefore, will continue to be subject to normal estate taxation. Right now, you are probably thinking: I have nowhere near $5.4 million and will not ever need to pay estate taxes.
Why bother with a revocable living trust? If you are a cautious estate planner, you may still want to create a revocable living trust to manage your and your spouse’s assets when one of you becomes mentally incapacitated or extremely ill. You will avoid probate and keep your assets private as well. Perhaps you are an older parent and wish to leave the assets intended for younger children in a trust. A trustee can be appointed to manage when and how much the children are to receive. In such cases, you will also appoint a guardian for your children as well.
An irrevocable trust is a trust that cannot be modified without the consent of the beneficiary. This is because the grantor irrevocably transfers his rights to the trust for the benefit of the beneficiary or beneficiaries, who may include the grantor of the trust. Urban Thier & Federer, P.A., assists clients with drafting irrevocable trusts according to their wishes. Given the nature of this type of trust, consultation with an attorney is critical in order to properly meet the legal requirements of an irrevocable trust. Often trusts are not drafted properly and can cause clients to seek consultation from an attorney to determine if the trust is valid.
More on irrevocable living trusts: What are the options for higher net worth individuals? For those individuals, say a married couple with assets in excess of $10.9 million the irrevocable living trust is more appropriate. An attorney would assist them in renaming all their assets, like bank accounts, mutual funds, life insurance policies and titles to property, into an irrevocable living trust while they are still alive. The difference here is that the couple surrenders ownership of all assets and transfers it to the irrevocable living trust. For the IRS, the ownership of the assets is indeed surrendered and therefore estate taxes are avoided. An irrevocable trust cannot be changed after it has been created. Since complete control of the assets is relinquished, the assets can be protected from estate taxes and from creditors seeking to recover unpaid debt. Interestingly, this area can raise some eyebrows as the trust maker can place assets outside of a creditor’s reach but can still provide for his family if he names them the beneficiaries of the irrevocable trust.
Create A Comprehensive Estate Plan With Us
Now that you know more about estate planning you may say, “I don’t need an attorney for estate planning because the internet offers free online estate planning services.” True, the internet has a wealth of free publications and software providers who put their advice online free of charge. Be aware that many of these websites require you to input all your personal information into a form that is safely stored online or on their “secure” servers. While the advice they offer may appear to be fair and correct, it may not be as safe as they claim. Company websites are compromised almost daily. If you don’t wish your private information to be “hacked,” do not put it out on the internet. Also, these “estate-planning-at-a-glance” companies generally warn that the information they provide may not be constituted as legal advice. It is best to hire a professional attorney, one with an experienced staff. If you are thinking of establishing a living trust to manage your assets, then contact our firm to discuss your options. Call us at 646-530-8782.
“This content is for informational purposes only and does not constitute legal advice or establish an attorney-client relationship.”