Nobody knows what the future holds. In today’s unpredictable world, it is prudent for everybody to start estate planning as early as possible. Too often, daily life prevents us from taking the time to ensure our assets are legally protected. Preparing a Last Will and Testament is the first important step in this process; however, a trust is another vital legal instrument that can protect assets and ensure your specific desires for the handling and distribution of your property at death are carried out appropriately. Depending on your particular financial circumstances, a simple will may be all that is required to safeguard your assets. A trust becomes more critical for those people that have a larger number of properties and/or assets that desire to direct how, when, and how much property a beneficiary will receive.
Clients often wonder what the difference is between a will and a trust. As we have discussed in prior posts, a will is a legal document that directs to whom, and under what conditions, the property should pass to a beneficiary. A will is a public document that goes through the probate process. The probate process includes several steps: appointing a personal representative, gathering property owned by the person who died, notifying creditors, beneficiaries, or heirs, handling debts and taxes, transferring legal title of the property owned by the person who died, filing documents with both the state and federal government, and filing documents required by the court.
The probate process is required when property owned by the person who died does not pass automatically to a survivor. The consequences of property passing through the probate process is that the beneficiary of a gift may not receive said gift for a lengthy period of time. Proper estate planning can significantly reduce the probate process.
Unlike a will, a trust normally does not go through the probate process. A trust is an agreement by a person who owns property that gives ownership of the property to another person for the benefit of one or more persons. A trust has certain parties who are responsible for different actions. The “Settlor” is the person that gives ownership of the assets to the trust, which is managed by a “Trustee.” The Trustee is responsible for managing trust assets for the Beneficiaries named in the trust.
There are different types of trusts, but the most prominent and popular is a “Revocable or Living Trust.” With a Living Trust, the Settlor maintains the ability to manage and/or revoke the trust during his or her lifetime.
A Living Trust has many advantages. First, as discussed above, the assets in trust will most likely not go through probate. The reason assets in a living trust will not got through probate is that the recently deceased person does not actually own the assets owned in trust. With a Living Trust, the Settlor is also the Trustee and Beneficiary while the Settlor is still alive. The designated trust Beneficiaries will assume the rights to trust property upon the death of the Settlor. In short, a Living Trust allows the Settlor to direct who is to receive trust property, the way the Beneficiaries can receive trust property, and when the Beneficiaries are going to receive trust property.
A Living Trust is flexible, which is why many families transfer their property to a Living Trust. With a Living Trust, the Settlors can change their mind, make amendments, or revoke the trust at any time before the death of either Trustee. The Settlor can also add property to the trust, remove Beneficiaries, name a new successor trustee, or sell trust property.
Tax savings and potential delay of the payment of estate taxes is another reason many families create a Living Trust. A Living Trust gives the Settlor the flexibility to plan for tax savings in the event of the death of one of the Settlors. For example, a Living Trust can be written in such a manner that after the death of the first spouse, the Living Trust is split into two trusts: an irrevocable trust and revocable trust. The sum of money equal to the estate tax exemption will be moved to an irrevocable trust. The remaining money will be transferred to the surviving spouse’s trust, which is revocable. This is called a bypass trust, and the surviving spouse may still use the income from the irrevocable trust during the spouse’s lifetime. The advantages to this type of trust is that the estate tax on the living spouse’s revocable trust is deferred until after he or she dies. The assets in the deceased spouse’s irrevocable trust will likely pass to the trust’s beneficiaries tax free because the estate tax exemption shields the assets from taxes.
Establishing a Living Trust does not negate the need for a will. Couples that establish a Living Trust should also execute a “Pour-Over Will.”
A Pour-Over Will transfers any remaining property not previously transferred to the Living Trust to the Living Trust upon the death of the person making a Pour-Over Will. A Pour-Over Will still must go through the probate process. With a Pour-Over Will, however, the probate process will be much faster because nearly all of the estate should have been transferred to the Living Trust.
A Living Trust gives you better control over what happens to your property. The Living Trust can help protect your family, particularly minor children. Proper estate planning allows for the appointment of beneficiaries, potentially save thousands of dollars in estate taxes, and protects your heirs from the expense and delay of probate. It is never too early for estate planning to ensure that you and your family are legally protected when tragedy strikes. Although a Living Trust may not be appropriate for everyone, an experienced Alaska Estate Planning Attorney can help review your situation and recommend the appropriate protections that will best serve you and your family.
Disclaimer: This article is for informational purposes only. It is not intended to convey legal advice or establish an attorney-client relationship with the readers of the article.
About the Author: Brad Carlson is the Principal Attorney at the Law Office of Bradly A. Carlson, L.L.C. His practice is focused on providing legal solutions to Alaskans throughout Alaska. He lives in Eagle River with his wife and children. You can reach Brad at 907-264-6721 or email@example.com.[jetpack-related-posts]