Wealth Planning News

Vol. V, No. 7

Revocable Living Trusts

 

A Trust is a very old arrangement, originally often used in England to avoid then applicable laws of primogeniture. It is now favored by most people reaching retirement age who discuss planning issues with their friends and with many of their financial advisors.

 

Think of the trust as a box you build that has governing rules on it. The first line says, "This is my box, and I can put things into it, take them out of it, and even destroy it if I desire, and I can also change the instructions on it." Next, "If I become disabled, then ______, my trusted successor, shall take this box and use its contents to pay my bills and take care of my needs, thereby avoiding any need for court involvement." "When I die, my trusted successor shall hold and distribute the contents of this entire box for the following persons, in the manner specified below, thereby avoiding delays, court involvement and attendant expenses, while preserving the entire privacy of my affairs from public record."

Advantages of Trust Centered Planning


By using a trust for your plan you retain the full dignity of control, even when you become disabled (a well designed trust will name someone to manage your financial affairs with instructions that far eclipse the blank check with no instructions inherent in a normal durable power of attorney).

 

There are three basic ways assets pass at death: 

 

By operation of law, such as joint tenancy;

 

By contract, such as insurance and retirement benefits; and

 

By probate administration.

 

Use of a properly funded revocable living trust is a better way chosen by many people. Think of the trust as a box you create and control for your own benefit. Into that box you put title to your real estate, tangible personal property, bank accounts, investment accounts, and you make that box the beneficiary of your life insurance, annuities, and in many cases even your retirement accounts such as IRAs.

 

Use of the trust is most advantageous for anyone who may become disabled, because on the instructions on your box you designate who will manage it and its contents in event of your disability, with instructions to use what the box contains for your living needs and expenses. This approach to disability planning is in our experience far superior to powers of attorney that merely give your agent powers to act for you, but have no instructions, and thereby function largely as a blank check. If you use the trust approach you also avoid any need for probate court involvement to designate and oversee your conservator or financial guardian, thereby preserving your privacy and saving expenses that go along with court proceedings. So for disability planning a trust is ideal with no drawbacks, and as a side benefit it preserves your dignity of control by reflecting choices you made prior to any disability.

 

Probate Issues

Unless you’ve made a living trust, and funded it with as­sets owned, all other assets other than those passing by operation of law or by beneficiary designation pass through the pro­bate pro­cess. This is true whether you have a will, or whether you’ve never made a will.

 

Probate will occur if you own as­sets at death that ex­ceed the "Small Es­tates" limit. This limit in Col­orado is now slightly above $60,000, but all real estate interests must go through probate to pro­vide clear ti­tle to your beneficiaries.

 

If you die without a will, the law pro­vides for who will re­ceive these as­sets you own. Because you may not like the disposition set forth by law, you may want to con­sider speci­fying your own in­structions for dis­posi­tion. You can do this with a will. Or you can avoid the pro­bate process en­tirely by use of a fully funded re­vo­cable living trust.

Problems of Probate

 

Probate procedures serve a useful purpose in rare cases. But death probate has some problems that many peo­ple choose to minimize or avoid by planning.

 

Probate Means Court Proceedings

 

Probate proceedings are court pro­ceedings. As such, they cause extra legal work with resulting le­gal fees that might otherwise have been saved for loved ones. Pro­bate fees in some Uniform Probate Code states aren’t as ex­cessive as in other states, but can neverthe­less be­come a bur­den. While the Uni­form Probate Code allows only a "rea­sonable fee" for probate, any fee for work that could have been eas­ily avoided should be consid­ered as "unrea­son­able."

 

In most cases, inventories and re­ports are filed with the pro­bate court as part of the pro­ceed­ing and violate your privacy by becoming public records.

 

Probate requires proceedings in ev­ery state where a dece­dent owned real property. In our so­ci­ety, many people own real es­tate, or interests in real es­tate (deeded time shares, or mineral inter­ests), in more than one state.

 

Probate Can Result in Delays

 

Because of the nature of the pro­bate pro­cess, which is in­tended to give time for no­tice to credi­tors, and time for credi­tors to re­spond, there can be delays of anywhere from at least six months to several years in settlement of an es­tate. Mean­while, assets are un­der the control of a personal rep­re­senta­tive (an ex­ecutor), and not under the control of those who will ulti­mately re­ceive the assets.

 

Probate Is A Public Process

 

Probate proceedings are public. This means that in most cases there will be full disclosure of as­sets and debts of the estate, and disclosure of liq­uidity needs of the es­tate. Fur­ther, there's public no­tice of who re­ceives the estate, in what propor­tions, and over what period of time. Many peo­ple who en­gage in estate plan­ning want to keep this type of in­for­ma­tion pri­vate, for both financial reasons and personal rea­sons. Making this fi­nancial in­formation pub­lic is like playing cards with your hand ex­posed to the other players.

 

For all of these reasons, and many others in some cases, use of a revocable living trust for lifetime asset management and estate disposition at death is always the best choice. The question is not how much wealth you have, but rather how likely it is that you may suffer disability or death. Hence the sensible choice of living trusts planning by people of retirement age.

If you're ready to explore your own planning possibilities, call us for a free initial consultation.

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