It has been suggested that my wife and I put most of our various possessions into a trust.
However, myself and an unrelated partner are joint owners of two office condominiums which we lease, and from which we derive a nice income. We don't yet (due to laziness) but have been considering entering an agreement to buy out the others interest in the event of death.
But if the trust owns my share of the property, wouldn't the trust then be liable for taxes on the profits from that sale? And couldn't that be avoided if the property were not in a trust, but my wife inherited it directly?
Thank you for that information. That helps me to understand my options.
My very limited understanding (and I have a lot of self-education work to do) is that it will provide a mechanism for avoiding delays related to probate, and there may be some other benefits also.
IMNHO - Probate is not usually something that needs to be feared. You also need to consider the costs involved. (A LOT of this is state specific so be advised that YMMV) In many cases living trusts are used to avoid probate. However, by the time you factor in the costs of constructing the trust document itself and the associated costs of transferring title of your assets to the trust (for example, in MD you can transfer your car into your revocable living trust but you have to pay a document transfer fee - similar types of fees would apply to redeeding real property) many people find that there is little difference between the cost of probate and the cost of the trust.
If you're trying to avoid probate you also have to keep in mind that anything you buy from now on also needs to be titled in the trust - IF YOU MISS SOMETHING then your heirs will still have to open a probate estate.
In my experience, the best argument for a trust is when you own titled or deeded property in a state other than where you live. For example, if you live in NY but own a condo in Orlando having that Orlando condo in a trust will keep you from having to open a probate estate far from home - this tends to be very expensive.
I can't speak to most other states but the probate process in Maryland is fairly simple for most folks. There is a time requirement of six months before you can close a probate estate, but this is to ensure that creditors have had an opportunity to file a claim with the trustee. Transferring stuff to a trust will NOT relieve anyone of the associated liabilities - for example, if you owe money on your car when you die it will have to be addressed whether the car is titled to you directly or to the trust.
I would suggest you meet with an accountant who does trust work BEFORE you meet with an attorney - attorney's sell trust documents, accountants don't. You will likely get a better assessment of your need for a trust from an accountant.
You can also hold your investments in trust - but again, there is little real advantage to doing so, especially if you have a revocable living trust.
I do have a lot to learn about this before making any decisions.
We own property in two states -- residences in ME and NH as well as leased offices in NH. But that does not meet the criteria of one of them being "far from home".
I've been told that the trust makes things "simpler" after death, but so far, it seems as if one price is awfully complicated before death.
A trust can make things simpler before death, too. My mother had a trust, and was the trustee while she was able, but eventually she became too confused to manage her affairs because of dementia. Without a trust, my brother and I would have had to take her to court and have her declared incompetent, which would have been very humiliating for her, and ask the court to appoint a guardian. In addition, ongoing court supervision of the guardian would have made managing her affairs both difficult and expensive. But because she had a trust, all she had to do was resign as trustee. A simple one-sentence letter was all that was required. When she resigned, the trust appointed a successor trustee. The successor trustee, whom she personally had chosen, took over, and everything has run very smoothly.
I'd have to say that her having a trust has made it infinitely easier on my brother and me than going the court-appointed guardian route. Having a trust may save your estate some probate expenses, but the big advantage is the ability to pick someone to manage your affairs while you are still alive if you become unable to do so yourself.
I agree wholeheartedly with Dave that the above is a slam dunk example in favor of a funded revocable living trust.
Beyond that, when it comes to wanting to avoid probate, I prefer to check out more simple things like accounts registered "joint with rights of survivorship", payable on death provisions and beneficiary designations before making things more complicated (a trust). Just keep in mind - there are pros and cons to everything.
Which leads to one of the biggest mistakes folks make all across this - asset titling. Whether you set up a trust or are planning on using other methods (ie. JTWROS), none of it works if folks don't follow through with the asset titling. I have heard so many stories of folks who'd set up very sensible trusts and then never moved all their assets into them. Or who just assumed that their spouses would get their accounts without actually making the beneficiary designations (or worse - who had left the designations pointing at ex-spouses or other wrong people!), or who hadn't retitled as JTWROS.
This is perhaps rule number one with estate planning - review all asset titles and beneficiary designations!
Okay, maybe it's rule number two after making sure that you select the right guardian for your minor children.
If I am not mistaken, another one is that trusts are private, whereas anyone can go to the court house and find out how assets are distributed in probate.
I'll echo that comment, to the point where I think it should be emphasized as a principal advantage of a trust over a will - rather than the "avoid probate" aspect which for many estates & states is not that big of an issue. I've now seen it many times in practice - both situations where having trusts set up was very beneficial, and ones where they weren't set up and it created enormous problems. Nothing to do with probate, nothing to do with huge estates, rather dealing with the "late in life" situations that we all may face.
As a result you don't need a great deal of assets to justify setting up a trust. Inability to pay the gas, phone, insurance and property tax bills can create a crisis for anybody, and anybody is at risk of something happening that puts them in that position (extended infirmity, dementia, etc.). Parent gets forgetful and stops paying long-term care insurance premiums, or falls victim to financial scams. What do you do? Think of how this can unwind decades of solid financial planning.
With "successor trustee" language in the trust document, accounts in the name of the trust, and a watchful successor trustee, this can be a relatively minor issue. The alternatives can be very difficult, costly, and stressful on all involved. A trust is not the only way to address all this, but the problem has to be mentioned as one not addressed by a simple will or JTWROS/POD account designations.
I think a General Power of Attorney would address those issues and a heck of a lot simpler and cheaper than a trust. My LTC carrier requested person & address information to notify in case of non-payment of premiums, and they ask annually for updates.
I would agree with Skip as long we emphasize the FUNDED part of his first sentence. As some others have pointed out the trust, or just about any other planning tool, requires that the assets be properly titled. Had "mom" failed to title her assets properly the trust would have provided no benefit at all.
Which is why I also recommend that folks consider a financial or general Power of Attorney. The up side is that this can cover things that are titled to the individual. One down side is that the fiduciary rules may be different for POA holder than they are for a trustee. Yet when we consider that most of the time the trustee or the POA will be a trusted family member we usually wind up in the same place.
Gene E. Utterback, EA, RFC, ABA
======================================= MODERATOR'S COMMENT: Please trim the post to which you respond. "Trim" means that except for a line or two of the previous post to add context, the previous post is deleted. Thank you.
Sorry - please forgive my "far from home" reference. It was not meant to convey a sense of distance. Rather it referes to the legal issues of probating an estate outside your state of residence.
For example, I live in Felton, DE just six miles from Maryland. If I owned property in my name in Maryland upon my death my heirs would have to open a probate estate in MD. Maryland, like most states, requires the listing of a resident agent - someone who lives in the state because the state is NOT going to incur the costs of notifying nonresidents. If my heirs can't find a friend or family member in MD who agrees to being listed as the resident agent then they will have to hire a professional resident agent - likely an attorney. This can get expensive - most attorney's get a percentage of the estate's value. But if they are ONLY going to be the resident agent they may not want to take the case or they may charge a hefty fee just to be listed as resident agent.
Let me be real clear here - if you own property anywhere except your state of residence you should seriously consider a revocable living trust. THIS is the best argument I've found in favor of them.
Lastly, the resident agent issue can sometimes be solved by using a family member. When my mother was alive she live with me in her final months. She had updated her will to list me as her personal representative (executor). Problem here was that she lived in MD and I live in DE. I had to open a (VERY) small probate estate in MD - literally to transfer a 15 year old Ford Escort and a bank account with about a $1,000 in it. That was ALL she had. MD insisted on a resident agent because they would not send anything out of state. I was lucky because my brother lived in Maryland so I was able to name him as resident agent which solved that problem.
Elizabeth, you're right that POAs can be a means of accomplishing some of the same goals. In practice I've come across financial institutions that won't recognize a general POA, meaning one not done on their own POA forms, without some work (which can require a lawyer and/or eat up valuable time when the need to assume control is urgent). There's also the issue of whether a POA valid in one state is valid & recognized in another, where for whatever reason the other-state's laws control. So far trustee successions I've seen have been generally smooth, though that too can of course have complications.
Another situation may be worth mentioning. My wife and I own everything jointly, i.e. JTWROS, so that in the event of the death of one of us, it all remains the property of the other. That inludes, bank accounts, stocks, real estate -- everything. In that case, I presume that probate would not be necessary. Of course, if we missed some rarely-used bank account somewhere that was in one name only (there might be one or two from years long ago, but I doubt it), then problems might arise. But I hardly see that as being of muchg practical importance. Of course, this would not work for someone with many heirs in the picture and lots of questions about who gets what and when, but for us it works fine.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.