Living Trusts
Trusts and wills are two means of passing property upon your death. Trusts may also serve other purposes. This section discusses trusts and compares the use of a trust to the use of a will. In many cases, using a living trust can be advantageous, but caution should be exercised. In certain circumstances, using a trust may unnecessarily complicate your estate, and in some cases may actually be disadvantageous. Because this area of the law is complex, an attorney should always be consulted before making a decision as to whether a trust is right for you.
That being said, there are many benefits to the use of living trusts in estate planning. We frequently recommend them to clients who can realize the benefits of living trusts:
Living Trusts can help your estate avoid probate at death, including needless and expensive probate in multiple states if you own property in more than one state.
Living Trusts can be used to take maximum advantage of federal lifetime estate tax exemption, reducing and often eliminating estate taxes entirely.
Living Trusts are relatively inexpensive and quick and easy to set up. Our standard fee for a married couple that includes trusts for both spouses is less than you would expect, and we can complete work on your documents in a matter of days.
Living Trusts assure your intentions are followed through with, because trusts are difficult to contest and unintentional disinheriting (as can happen with joint tenancy property) is avoided. Also, your assets remain in the trust until you say they are to be distributed.
Living Trusts can provide for minors and other beneficiaries with special needs without the intervention of court proceedings.
Living Trusts have other benefits, such as quicker distribution, professional management where desired, and the peace of mind that your wishes will be fulfilled in distributing your assets after death.
A trust is an agreement between you and the trustee. In the trust agreement you tell the trustee to manage and distribute the trust assets. You can think of a trust as a basket that can hold assets. For example, you can put cash, stocks, bonds, real estate or other assets into the basket. The basket comes with its own set of instructions. The instructions (the trust agreement) tell the trustee what to do with the trust assets that are in the basket. The instructions only apply to the assets which are placed into the basket.
The person who sets up the trust is called the "Trustor," "Grantor" or "Settlor." The person who operates the trust is the "Trustee." The trustee can be yourself or you and your spouse, another individual, or a licensed bank or trust company.
The trust agreement is the document that contains your instructions.
The beneficiaries of the trust are the people who receive the benefits of the trust. For example, the beneficiary may be entitled to receive a distribution upon the death of the Grantor.
A "living trust" is simply a trust created during your lifetime. It may also be called a "Grantor Trust," a "Revocable Trust" or an "Inter vivos Trust."
As noted, living trusts may also be called "revocable trusts." If you have a revocable trust, you can change your mind. You can change or amend any of the trust provisions, or you can revoke it altogether. This means you can cancel the trust and get your property back. You can also change the instructions contained in the trust agreement.
There is another kind of trust that is used in specific situations, called an irrevocable trust. An irrevocable trust is one in which you can not change your mind. Once you set up an irrevocable trust, you can never change it. If you are the Grantor of an irrevocable trust, you can not cancel the trust, nor can you change the instructions.
If you place income-earning assets in a revocable living trust, it will not affect your income taxes. Revocable living trusts are treated as if the assets are owned by the Grantor, and income is reported on the Grantor?s 1040 tax return. After the death of the Grantor, a iving trust becomes irrevocable, and the trust will be required to file its own tax return and to apply for its own new federal identification number.
Under Nebraska law, if you and your spouse are divorced, any gifts made in your will to the person who is now your ex-spouse are automatically canceled by the dissolution, divorce or annulment. A legal separation does not cancel the will. However, a gift in your living trust made to the person who is now your ex-spouse is not canceled by the divorce. You will have to remember to change the living trust. If the trust is irrevocable, it can not be changed by the divorce unless the trust has a divorce clause.
There are many advantages of a living trust over a will for the disposition of your property:
1. Avoid Probate. Perhaps the most common motivating factor for people to choose a trust over a will for the disposition of their property after death is that assets in a living trust usually avoid probate at death. Remember the assets must have been transferred into the living trust to avoid probate. If you successfully place your ?probate assets? into the trust, the expense and delay of probate can normally be avoided.
2. Simplicity. Often a paramount concern for people who choose to establish a living trust is so that their family members do not have to undergo the expense, complications and delay that is entailed in the probate process. The Grantor can often easily transfer his or her assets into the trust without any problem. In the absence of a trust, the heirs may have difficulty identifying assets that were owned by the deceased person and getting them passed along to the intended beneficiaries.
3. Lesser Cost. A typical Nebraska probate can cost around five percent of the value of the estate. For most people, the expense involved in setting up a living trust is quite modest in comparison.
4. Disability. A trustee can continue to manage living trust assets (those actually transferred into the trust) if you become disabled without the court appointment of a conservator.
5. Asset Management. If the trustee is an expert, professional management of the living trust assets may be available. While trust departments of banks charge an annual fee based upon the amount of assets under their management much like a mutual fund, the management services and reporting that is provided is well worth the cost in many cases.
In order to realize the benefits of a living trust, it is essential that financial assets, real estate and other titled assets actually be transferred into the trust. If the ownership of all of your property is not transferred to your living trust, it remains subject to the normal rules for transfer of property at death and might be subject to probate.
Although there are many "fill-in-the-blanks" forms of living trusts that you can purchase on the internet, you should have your trust prepared by an experienced estate planning attorney. In making a living trust, you need to consider state trust law, state probate law, and federal and state tax laws. Although you may be able to write your own trust or use an advertised form or kit, a "do-it-yourself" trust could mean title problems, unintentional disinheritance, or even lawsuits among family members. A mistake could prove quite costly to your family.
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