PROBATE AND TRUST ADMINISTRATION
What is probate?
Probate is the state’s way of winding up your affairs after you die when you have a will or no estate plan document. Your estate is processed through the probate court. Probate is a specific set of legal codes that allows the state, through your personal representative, to properly accomplish tasks like paying off debt, fielding fraudulent claims from creditors, filing and paying taxes, and distributing your assets. Generally, probate is a rigid and rigorous legal process that involves a great deal of time and money to complete.
Will probate occur in multiple states if I have property in multiple states?
Yes. Unless your living trust owns your property, probate occurs in every state where you own property.
Is there a way to avoid probate?
Yes. You can often avoid probate by creating a living trust. Because living trusts are legal entities that own your assets for you, they are not subject to the probate courts.
What is a living trust?
A living trust is a legal entity that owns your assets, yet allows you to remain in complete control of them. Living trusts are also sometimes referred to as revocable trusts. The terms living and revocable refer to the fact that the trust can be changed or revoked as long as you are alive and competent. While the living trust owns the assets, you retain all the incidents of ownership. This means that you can buy, sell, and borrow against your assets as you always have while they are in trust.
How difficult is it to change my living trust?
So long as you are competent, you can change your trust at any time with minimal legal fuss.
What’s the difference between a revocable and an irrevocable trust?
The term revocable means that the trust you create can be revoked at any time. This allows you to change the trust in any way you like until you pass away. When you pass away, your trust becomes an irrevocable trust; the terms are then set in stone and cannot be changed. Certain estate planning techniques might also create an irrevocable trust while you’re alive. It’s best to become educated about the applications of both revocable and irrevocable trusts to determine which best fits your personal circumstances.
Who are the trustors or grantors of a trust?
The trustors or grantors are the people who establish the trust. In most cases, they are also the people who fund the trust. If you and your spouse or domestic partner are creating a trust, the two of you will be trustors.
Are successor trustees personally liable for debt owed by the estate?
No. A trust is a separate legal entity and consequently responsible for its own debt.
Can my successor trustees change my trust?
No. Your successor trustee is not allowed to alter the trust in any way. However, if your successor trustee is your surviving spouse or domestic partner, you can permit them to change your beneficiaries or the percentages your beneficiaries receive. This is a smart arrangement when partners plan to leave their entire estate to their joint children and the surviving partner might need flexibility for issues such as divorce, drug abuse, incarceration, or estate tax planning.
Can the successor trustee take advantage of my trust to his or her own ends?
Not really. Your successor trustee is bound to act with fiduciary responsibility regarding your trust. This means that he or she is legally bound to act in the best interests of the trust and is usually forbidden from self dealing. That being said, unlike a will, there is no court oversight. The only people who would know if a successor trustee is not acting within the bounds of fiduciary responsibility is the beneficiaries. It’s rare, but there have been cases where successor trustees have taken advantage of trusts. If you’re worried about it, you can always assign a trust protector whose responsibility it is to watch over the successor trustee.
Who is a “trust protector”?
A trust protector is someone who is assigned to keep an eye on your trust and your successor trustee to make sure everything is carried out according to the trust document. Basically, it’s a safety valve between the successor trustee and his or her potential abuse of the trust. Your trust protector has the power to take legal action against a successor trustee who is not handling the trust properly, self-dealing, or otherwise acting unethically.
What happens to my trust if I get divorced?
If both of you are trustors and trustees of the trust, you will terminate the trust as part of the divorce process and remove the assets from the trust. You can then create a new trust as single person.
What happens if I remarry?
If you remarry, you may need to create a new estate plan that covers both of you.
Do I have to take a living trust through probate?
As long as the trust is written and funded properly, you do not have to take a trust through probate. A trust is a separate legal entity and therefore, does not have to be processed through the probate system.
Even if I have a relatively small estate, can I still have a living trust?
Yes. The size of your estate does not necessarily affect whether you can or should choose a will or a trust. Other considerations beyond size include the ability to design an efficient system for your estate to be managed if you’re incapacitated or to have a smooth transition of guardianship if you have minor children.
Can I have a trust if I am single?
Absolutely. If you were to become incapacitated and not have a written estate plan, only your family would have the power to go to court to seek power to manage your affairs. If you’re single, a living trust can make life easy on your family in taking care of you and your assets should you become incapacitated, especially if they live far away or are not best suited to manage your estate.
Is an AB Trust actually two different trusts?
An AB Trust is like two trusts in one. One set of documents creates the trust, however, the trust itself is split in two as soon as one spouse passes away. Upon the death of the first spouse, the trust is split into an A Trust and a B Trust. The A Trust is for the surviving spouse and the B Trust is the decedent spouse’s trust. In the trust documents, you can determine which assets flow into the A Trust and which into the B Trust. The surviving spouse can also make this decision at the time of the first spouse’s death. A set of rules then applies as to how the spouse is allowed to manage each of the trusts. The AB trust isn’t as common as it once was because under current federal estate tax laws, you don’t need an AB trust to take advantage of both spouse’s estate tax exclusion. Nowadays, the AB is used primarily for creditor protection or if the spouses have different beneficiaries.
What are the rights of the surviving spouse as trustee?
To some degree this depends on the trust to which your spouse is trustee. Usually, a spouse will retain all incidents of ownership—the rights to buy, sell, or borrow against property in trust. There are exceptions to this rule, but generally this is how it works.
What are the rights of the spouse to the decedent’s B Trust?
As long as the surviving spouse is named successor trustee of the B Trust, which is usually the case, he or she can use funds in the trust to maintain his or her lifestyle. However, some technical restrictions apply in that the surviving spouse can only use principal from the trust to maintain the quality of life that he or she has been living. For all intents and purposes, this means that your spouse can use these funds as he or she wishes.
What are the rights of the spouse to the A Trust?
The A Trust is the surviving spouse’s trust. He or she has full rights to this trust.
Can the surviving spouse change beneficiary designations on the B Trust?
No. The surviving spouse is not allowed to change beneficiary designations on a B Trust. However, if your successor trustee is your surviving spouse or domestic partner, you can permit them to change your beneficiaries or the percentages your beneficiaries receive. This is a smart arrangement when partners plan to leave their entire estate to their joint children and the surviving partner might need flexibility for issues such as divorce, drug abuse, incarceration, or estate tax planning.
What does “Q-Tip” mean?
Q-TIP is not just a cute white stick with cotton on the end. In estate planning, it stands for Qualified Terminal Interest Property. It’s sometimes the C of an ABC Trust. The B Trust can also be a Q-TIP Trust. The Q-TIP Trust is created to allow a surviving spouse to take advantage of an estate tax saving statute. This means that to establish a trust of this nature, the surviving spouse must retain the right to any income made from the C Trust. However, he or she is not allowed to spend any of the principal in the C Trust. Depending on your situation, we can help you determine if a Q-TIP trust is a good choice for you.
What happens to assets outside of my living trust?
Any assets not owned by your trust will either be handled through the probate court or perhaps through a will substitute such as beneficiary designations. If you want to ensure that all of your assets are accounted for, you can create a Pour Over Will. This will states that assets left out of the trust pour over into the trust. However, this transition still has to be processed through the probate court.
What does “funding a trust” mean?
Funding your trust is the process by which you transfer ownership of your assets into the name of the trust. It is one of the most critical steps in creating a trust, so we take great care to help our clients through the process. Any assets not owned by your trust must be processed by probate if a will substitute isn’t employed.
Will I lose control of my assets with a living trust?
No, as long the trust is properly written and you correctly transfer assets into the name of the trust. Since you name yourself as trustee to the trust, you still maintain full control of your assets.
Why do I have to give up ownership of my assets to the trust?
It’s an efficient and valid method to keep your assets out of court if you’ve died or you’re incapacitated. If you’re incapacitated and your assets aren’t owned by a trust or jointly held with your spouse or domestic partner, a court must appoint a conservator to manage your assets. The trust being a separate legal entity, ensures that your assets are not subject to probate. If the trust does not own the assets, they will go through probate.
How does a living trust affect the way I file taxes while I’m still alive?
It doesn’t. Everything about your financial life remains essentially the same with a living trust for as long as you’re alive. You’ll file taxes the same way that you always have and sadly, a living trust doesn’t make taxes any more fun and exciting.
Can I still borrow against my home (or other assets) if it’s in a living trust?
You can. Most lenders will require you to first remove the property from the trust in order to finalize the refinancing or loan. Afterward, you’re permitted to return the property to the trust. It’s a ridiculous step, but generally required.
Do I have to have a living trust for every state?
No. You don’t have to have a different living trust in every state. You do not have to have it reviewed in every state either. In your trust document, you choose the state laws that will govern your trust. As long as your trust is valid in that state, it will be valid in every other state.