If you are retirement age, you may be thinking about how to plan your future and benefit your children or grandchildrens’ futures. However, according to Care.com’s Estate Planning & Wills study on adults planning their estate, less than one-third of American adults have their planning documents in order. If you are one of those who have been putting off making a plan, now is a good time to make sure your affairs are in order. We don’t know what the future holds and our life and times are not in our own hands.
In the Care.com study, 13% of those who have started planning their estate have a living trust. If you are ready to think about what needs to be done to care for yourself and your family, a living trust, also called a revocable trust, is a good starting point along with writing your will. If you are wondering what a trust is and how it can help you, read on.
What is a Living Trust?
Basically, a revocable living trust is a legal framework that owns your property for you. It has its own tax id number and makes its own income and has its own possessions. A revocable living trust is basically much like a business that runs your household.
The Grantor (Trustor, Settlor)
Every trust has a Grantor. The Grantor adds the assets to the trust. You can add real property, homes, cars, retirement accounts, bank accounts, digital assets, or pretty much anything of value.
The trust also has a trustee. The trustee is responsible for running the trust. A trustee has a duty to administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust document and the interests of the beneficiaries.
A Trustee invests and manages trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the Trustee exercises reasonable care, skill, and caution.
A Trustee has a duty to administer the trust solely in the beneficiaries’ interests. You can act as the Trustee of your own revocable living trust until you pass away or become incapacitated or incompetent.
Beneficiaries can be anyone, including yourself while you are alive. After your death, your beneficiaries could be anyone you named to receive your assets; such as children or grandchildren. You can specify times for gifts or distributions to be given based on whatever you believe is best. If your granddaughter does not seem mature enough to receive a large lump sum amount now, you can specify an age or an event that would bring about more gifts or you could set up a steady stream of income for someone who is disabled.
You Reap the Benefits
The first major benefit of a Living Revocable Trust is that as the Grantor of the trust, you can serve as Trustee and also Beneficiary of your own trust during your lifetime. With this type of trust, you have the ability to take assets out or put them in and you decide how assets are used during your lifetime and after you pass away. If you decide at any point to add or subtract Beneficiaries, change the Trustee, or make other revisions, you can do that with a living trust.
You are Taken Care Of
In the language of a trust, you can include who will become Trustee and manage the trust if you become incapacitated or incompetent. In North Carolina, you can also choose a corporate Trustee, such as a bank or attorney, to manage your trust for your benefit if you so choose. You can decide what type of care or situation is best for any type of health problems you could encounter. If you develop Alzheimer’s or dementia or have a medical event that leaves you needing long term care, you have already decided how your assets should be used to care for you.
A Living Revocable Trust can protect the confidentiality of your estate plan. The items in a trust do not pass through probate and so are kept private to the Trustee and Beneficiaries. Your will, however, is a matter of public record and can be seen by anyone.
If you don’t have a will, any property not contained in your living trust or passed on by joint tenancy or transfer on death documents will be determined by Intestate NC Law.
The assets of a living trust do not pass through probate. The Trustee distributes the assets as the Trust has determined to do so. However, the other estate items that are not in the trust do go through probate. If there are claims against the estate for debts or healthcare costs, these must be paid before the Trustee can pass on inheritance money to the beneficiaries.
Because you most likely will have most of your assets in the trust, you can avoid some of the fees associated with probate that can add up in long and complicated estates who do not have trusts. Court costs, legal fees, accounting expenses, appraisal charges and remuneration for the executor can add up over time. Having a Living Trust can expedite the process so that it is less costly.
A trust agreement prepared by an attorney specifically for you can reduce or defer federal estate taxes. A living revocable trust can definitely give you tax advantages, but there are other types of trusts which may be more advantageous for tax sheltering purposes in 2020. NC has no estate or inheritance tax and the federal estate tax does not apply unless your estate is worth more than 11.58 million (or twice that for a married couple) If you are managing this amount of wealth, consult an attorney for the best trust types for your particular situation.
Whether you are trying to avoid probate expenses, care for yourself long term, regulate distributions of assets to heirs, avoid taxes, or keep your estate matters private, a living revocable trust could be an answer in your search for the best planning strategies for your estate.
It is in your best interests to contact an estate planning attorney to determine which legal instruments are best in your situation. Whether you need to write your will or develop your advance directive, consider power of attorney documents, or plan for your heirs, an estate planning attorney can point you in the right direction for your best interests and the best interests of your heirs. At Hopler, WIlms, and Hanna, our estate planning attorneys are apprised of the latest laws and regulations and know how to plan an estate in a way that is best suited for each unique individual or family.