Living Trust 101: How Living Trusts Avoid Probate

Living Trust 101: How Living Trusts Avoid Probate

Article shared from Nolo.com

Most people want to leave as much of their money to their children, or other heirs, as possible — and want to avoid a big chunk of that money going to probate lawyers. That’s where living trusts come in — they can help in avoiding probate and probate fees. Probate involves inventorying and appraising the property, paying debts and taxes, and distributing the remainder of the property according to the will. When you make a living trust, your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave

When you make a living trust, your surviving family members can transfer your property quickly and easily, without probate. More of the property you leave goes to the people you want to inherit it. A basic living trust allows property to avoid probate and to quickly and efficiently pass to the beneficiaries you name, without the hassles and expense of probate court proceedings. A married couple can use one basic living trust to handle both co-owned property and separate property.

Creating a Trust

To create a basic living trust, you make a document called a declaration of trust, which is similar to a will. You name yourself as trustee — the person in charge of the trust property. If you and your spouse create a trust together, you will be co-trustees. Then you transfer ownership of some or all of your property to yourself in your capacity as trustee. For example, you might sign a deed transferring your house from yourself to yourself “as trustee of the Jane Smith Revocable Living Trust dated July 12, 2014.” Because you’re the trustee, you don’t give up any control over the property you put in trust. In the declaration of

In the declaration of trust document, you name the people or organizations you want to inherit trust property after your death. You can change those choices if you wish; you can also revoke the trust at any time. When you make a living trust, you should also make a back-up will. Doing so will ensure that any property not transferred to the trust will go to the people or organizations you want to receive it. If you don’t make a will, any property not included in your trust will be distributed according to the laws of your state — usually to the nearest relatives.

Taxes and Recordkeeping

After a revocable living trust is created, little day-to-day record keeping is required. Just be sure to do the required paperwork whenever you transfer property to or from the trust. That shouldn’t be difficult.

EXAMPLE: Monica and David Fielding put their house in a living trust to avoid probate, but later decide to sell it. In the real estate contract and deed transferring ownership to the new owners, Monica and David sign their names “as trustees of the Monica and David Fielding Revocable Living Trust.”

No separate income tax records or returns are necessary as long as you are both the grantor and the trustee. (IRS Reg. § 1.671-4.) Income from property in the living trust must be reported on your personal income tax return; you don’t have to file a separate tax return for the trust.

After Your Death

When you die, the person you named in the trust document to take over — called the successor trustee — transfers ownership of trust property to the people you want to get it. In most cases, the successor trustee can handle the whole thing in a few weeks with some simple paperwork. No probate court proceedings are required.

 

BREAKING DOWN THE COSTLY MISTAKE THAT WILL BURDEN YOUR FAMILY AND COST YOUR ESTATE THOUSANDS 

Example of what a $950,000 house with a $400,000 mortgage looks like with probate.

Avoid Probate Create Living Trust

 So what are we saying to you?…. Stop procrastinating and get it done!  While you are sitting down with your attorney, discuss using a licensed fiduciary as your successor trustee.

Here are the “Top 5 Benefits to Naming a Licensed Fiduciary as your Successor Trustee“:

  • Remove the burden from a family member who will most likely be mourning your decline/death.

  • Professional trustees are familiar with the trust administration process and can get things done more efficiently than someone who is trying to do it between raising a family and working a full-time job of their own.

  • Dramatically reduce likelihood of conflict between siblings or blended families with a neutral/3rd party trustee.

  • Licensed, insured, and bonded… If an error is made that costs your Trust hundreds of thousands of dollars, is your Son or Daughter insured to cover losses?  Would the other siblings then try to sue the one you appointed as Trustee for lost inheritance?

  • Feel guilty about appointing one child as the Trustee and not another?  Does your Son/Daughter have the time to take on the duties required?  Are they willing to take on this responsibility?  Are they capable of handling this responsibility?…. Name a professional trustee.

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