Why should I consider a Revocable Living Trust rather than a Will?
Not only does a Revocable Living Trust help you dispose of your property (like a Will), but it also offers other benefits. It is a very flexible tool that can be used to avoid probate, reduce estate taxes, control distributions to children, preserve privacy, manage assets upon incapacity and accomplish many other goals that cannot be accomplished with a Will.
Is a Revocable Living Trust generally better than a Power of Attorney?
A Revocable Living Trust is often recommended to clients as the key document in their estate plan. One reason for this is that the Revocable Living Trust is normally the best method for managing assets during incapacity. A major advantage of the Revocable Living Trust over the Power of Attorney is that a trustee has actual title to the assets and, therefore, third parties must deal with the trustee as the owner. An agent does not have title and hence third parties sometimes refuse to deal with the agent. This is particularly true if the Power of Attorney is more than a few years old.
Will I still have control over my property if I establish a Revocable Living Trust?
Absolutely! While you are alive and mentally competent, you have complete control over your property. You can buy, sell, improve, spend, change investments, or give away property just as you would without a trust. The trust can be modified in any manner you desire or it can be completely revoked. Upon your death, the trust becomes irrevocable so that no one can change your wishes. For married couples, the surviving spouse still has total control over his or her share of property after its transfer to the survivor's trust, and the trust may or may not become irrevocable as to the deceased spouse's share.
Who is the Trustee of my Revocable Living Trust?
While you are alive, you act as Trustee. For married couples, either one or both spouses may act as Trustee or Co-Trustees. The Successor Trustee is an individual or institution whom you designate to be in charge of your trust in the event of disability or upon death.
Who should be designated as Successor Trustee of my Trust?
You will need to designate one or more Successor Trustees. These can be individuals, such as family members, trusted friends, trusted professionals, or you could designate an institution, such as a bank or professional trust company. Individuals may predecease you, while an institution will most likely still exist at the time of your death. Institutions provide the benefit of experience in money management and trust administration, while family members and close friends are more “personal” and have first-hand knowledge of your desires. If you choose an individual, the individual should have some business sense, or you might wish to name an individual and an institution as Co-Trustees. The downside to Co-Trustees is the possibility of disagreements.
Will my income taxes change if I create a Trust?
A Revocable Living Trust does not change your income tax liability. The Internal Revenue Service does not require any additional income tax filings when you create a Revocable Living Trust, and the same annual 1040 tax return is filed as long as a married couple files jointly and the trust holds no foreign property.
Do property taxes change if I create a Trust?
No, Arizona property taxes remain the same when real estate is transferred into a Revocable Living Trust.
How do I fund my Trust?
Funding a Revocable Living Trust entails transferring assets you own as an individual into the name of your Trust. For your real estate holdings, our firm makes the transfers and prepares the documents for you to sign. For other assets that our law firm is unable to change for you, we will give you instructions as to how title is changed, and will provide you with the necessary paperwork. For example, to fund your Trust with bank accounts, a letter is prepared for you to take to the bank to change title of your accounts. You will have to go to the bank in person to sign a new signature card as Trustee of your Trust.
What assets are left outside of my Trust?
Assets which are not generally funded into the Revocable Living Trust are 401(k)s, IRAs and other retirement plans, since holding these assets in trust could have adverse tax consequences. It is important to coordinate the appropriate beneficiary designation on the accounts with your overall estate plan. This is a complex area of planning and must be based on each person's individual family circumstances.
If I transfer real estate to my Trust can the bank call my loan?
Enacted as part of the Garn-St. Germain Depository Institutions Act of 1982 (P.L. 97-320; 96 Stat 1501), a due-on-sale clause cannot be enforced on a “transfer into an inter vivos trust on which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.” This exemption applies to residential real property containing less than five dwelling units. The regulations state that the borrower in this type of situation must remain the beneficiary and occupant of the property. However, “occupancy” is not defined. Therefore, if the borrower is not the occupant, prudence suggests notifying the lending institution before the transfer.
Does a Revocable Living Trust provide asset protection?
During the lifetime of both spouses there is no asset protection provided by a Revocable Living Trust. However, there may be some protection for the survivor after the first spouse dies. The trust can also be created to provide creditor protection for other beneficiaries of the trust. Other tools can be used, in conjunction with the Revocable Living Trust, to help protect assets from creditors.
Does a Revocable Living Trust protect against long-term care costs?
A Revocable Living Trust is not generally designed to protect assets from the “spend down” requirements of AHCCCS and similar government subsidized long-term care programs. Long-term care planning performed by a qualified elder law attorney well in advance of applying for government benefits can help protect assets in this situation.
How do I change my Revocable Living Trust?
A change to the terms of a Revocable Living Trust can be accomplished through an amendment to the trust. An example would be changing the distribution from two children to just one child. A trust can also be changed by a total replacement or “restatement” of the trust if multiple changes are involved.
Will my Trust need to be changed when I buy or sell assets?
Buying or selling assets does not change the trust terms. It merely changes the assets in the trust. So think of buying and selling assets as assets going in and out of the trust without changing the terms of the trust. When does a Revocable Living Trust end or terminate?
A trust will end or terminate when the distribution of all assets is made pursuant to the trust document.
How do I revoke my Revocable Living Trust?
Trusts are rarely revoked. Most of the time, once a trust is set up, no one wants to revoke it. However, there are situations where it does occur, primarily in the case of divorce. A brief written agreement is prepared, indicating that the trust is now revoked. The assets are removed and put in the names of the individuals, who are then free to establish new trusts if they so desire.
What happens to a Revocable Living Trust when one spouse dies?
When one spouse passes away, at that time, the surviving spouse should contact our office for a review of the Trust to determine what needs to be done in order to follow the terms of the Trust. We may need to inventory all assets so that we know what is in the Trust in order to divide the assets into the A Trust and the B Trust -- the Survivor's Trust and the Decedent's Trust, if applicable. There may be tremendous tax benefits associated with dividing the assets between the A and B Trusts on the death of the first spouse.
What happens if I am single when I die?
When a single individual passes away, whoever is named as Successor Trustee may contact our office for assistance. In most cases, the Trustee is instructed that assets need to be collected, debts need to be paid and then ultimately the distribution of assets will be made pursuant to the terms of the Trust. In essence, the terms of the Trust are carried out. This can usually be handled without the need to hire an attorney.
How long does it take to set up a Trust?
Generally, we like to complete the work within 2-3 weeks of our first client meeting, but in most cases we can work around your needs if it is required sooner.
Can someone contest a Trust like breaking or contesting a Will?
Anyone can hire an attorney to question how legal affairs have been arranged. So, in theory, anyone can attempt to contest a trust. In practice, however, it is much more difficult than contesting a Will. As Wills must be probated, any interested party can easily join the routine probate court proceedings and contest the Will at that time. In contrast, someone who wants to contest a Trust must take the initiative to begin his or her own lawsuit, complete with court costs and attorney's fees.
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