Revocable Living Trusts - FAQ's
Over the past few years the Revocable Living Trust has received a lot of press. As more and more people become aware of downside to probate, talks begin about alternatives especially the Living Trust. Unfortunately, a lot of misinformation is also communicated. So, to remedy this, we did our best to compile many of the most common questions we received and answered them for you.
Q. What exactly is a revocable living trust?
It is a separate legal entity set up to care for and manage property or funds for you or for the benefit of another.
Q. If I set up a trust is a will also required?
Yes. A will, called a "pour over" will, is also drafted in conjunction with your trust. If you fail to transfer all your assets into the trust, the will picks up those assets at the time of your death and transfers them into your trust for distribution. All assets "poured into" your trust by the will must go through the probate process first. Guardians for minor children are also named in the will.
Q. Will my property taxes increase if I transfer my real estate into a trust?
No. State law stipulates a special exemption for property placed into a trust for the benefit of the Grantor.
Q. Does my tax status change when I create a revocable living trust?
No. As long as you are the trustee of your trust, any income generated by assets owned in your living trust are taxed as if they were still held in your name and reported on your personal 1040 form. No special taxpayer identification number and no special tax forms are required.
Q. Can I borrow against the assets in the trust?
Yes. The trust does not restrict your rights to borrow on assets in any way.
Q. What rights does the surviving spouse have in the trusts assets?
If the surviving spouse is a trustee, he/she has unlimited rights to buy, sell and transfer assets.
Q. Doesn't joint tenancy always avoid probate?
No. Joint tenancy does not avoid probate upon the death of the last owner. For instance, if you and your spouse own your house as joint tenants and you die, the house passes to your spouse free of probate. However, when your spouse dies, or if you and your spouse die simultaneously, the property will be subject to probate because there is no surviving joint tenant. Had the house been placed in the living trust, there would not be probate at either death.
Q. Who manages the trust?
Usually you name yourself to be the manager (trustee). However, you could name a friend, a child who is not a minor, or a corporate entity, such as a bank.
Q. Are living trusts valid in all 50 states?
Yes. A living trust is valid in all states and in most foreign countries. Q. Will I have to rewrite my trust if my personal circumstances change?
You can change or amend your trust as often as you wish. We suggest, after two or three changes, you make an "amendment in entirety" incorporating all of your changes into one document. We assist and include the documentation to make this process simple and easy to understand.
Q. How does the trust end?
A living trust is dissolved when all of the assets have been distributed or it may be revoked by the Grantor(s) at anytime.
Q. Will a living trust protect me against my creditors?
No. A living trust does not insulate your assets from the legitimate claims of creditors.
Q. Can I appoint a minor child as my Successor Trustee?
No. The minimum age for a Successor Trustee is eighteen years.
Q. What is the difference between a "revocable" and "irrevocable" trust?
A revocable trust can be changed at any time until a designated event occurs, usually one's death. An irrevocable trust cannot be changed once it has been created.
Q. Can the living trust buy new assets without making an amendment to the trust?
Yes. Title to any assets purchased after the execution of your trust should be purchased in the name of the trust.
Q. Can a living trust save on income taxes?
No. A living trust provides no income tax advantages. It does however help your heirs save in regards to estate taxes.
Q. What is an A-B Trust?
An A-B Trust is one version of a living trust that can be used by married couples to utilize the $3,500,000 exemption (in 2009) for each spouse and thereby minimize or eliminate estate taxes. I will go over with you the best trust for your specific goals and needs. Problem: The exemption is scheduled to be reduces to $1,000,000.00 per person by the year 2011.
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