A Will may not be the best plan for you and your family. A Will does not avoid probate and must be validated by the Surrogate court before it can be enforced where your Will only controls once you die, regardless if you become physically or mentally incapacitated. Thus the Court may take control, or order a representative, as to your assets before you die, which is an issue for millions of older Americans and their families. To avoid this, an alternative to a Will is the revocable living trust to avoid probate and also permit your control of your assets while you remain alive and after you die.
Probate of a valid Will is the estate process through which the Surrogate court certifies and oversees. The estate Executor / Executrix will need to marshall assets, address debts and then distribute according to the Will. If you do not have a valid Will, assets are then administered to and distributed according to state law. Probate can be time consuming and costly
Joint Ownership May Avoid Probate – Joint ownership assets may or may not be part of probate. With most jointly owned assets, when one owner dies, full ownership does transfer to the surviving owner without probate. But if that owner dies without adding a new joint owner, or if both owners die at the same time, the asset must be probated before it can go to the heirs. Other problems when you add a co-owner may cause you lose control, or being named in a lawsuit by creditor or other. Also, gift and/or income tax issues may arise where the Will does not control most jointly owned assets and possibly disinherit your family. With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” via Court order.
A living trust is a legal document that, just like a Will, contains your instructions for what you want to happen to your trust assets when you die. But, unlike a will, a living trust may avoid probate at death, control all of your assets, and prevent the court from controlling your assets if you become incapacitated. When you set up a living trust, you transfer assets from your name to the name of your trust, which you control—such as from “Bob and Sue Smith, husband and wife” to “Bob and Sue Smith, trustees under trust dated (month/day/year).” Legally you no longer own anything; everything now belongs to your trust. So there is nothing for the Surrogate or Courts to control when you pass or become incapacitated. The concept is simple, but this is what can keep you and your family out of the Courts.
That, you keep full control. As trustee of your trust, you can do anything you could do before—buy and sell assets, change, or even cancel your trust. That’s why it’s called a revocable living trust. You even file the same tax returns. Nothing changes but the names on the titles.
You can, and your attorney, trust officer, financial adviser, and insurance agent can help. Typically, you will change titles on real estate, stocks, CDs, bank accounts, investments, insurance, and other assets with titles. Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles. Some beneficiary designations (for example, insurance policies) should also be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401(k), etc. can be exceptions.)
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you selected, until your beneficiaries reach the age(s) you want them to inherit. Your trust can continue longer to provide for a loved one with special needs, or to protect the assets from beneficiaries’ creditors, spouses, and future death taxes.
Your estate will have to pay federal estate taxes if its net value when you die is more than the “exempt” amount at that time. (Your state may also have its own death or inheritance tax.) If you are married, your living trust can include a provision that will let you and your spouse use both of your exemptions, saving a substantial amount of money for your loved ones.
Not quite. A will can contain wording to create a testamentary trust to save estate taxes, care for minors, etc. But because it’s part of your will, this trust cannot go into effect until after you die and the will is probated. So it does not avoid probate and provides no protection at incapacity. Obtain a local attorney who has considerable experience in living trusts and estate planning will be able to give you guidance and peace of mind that your trust is prepared.
Yes, you need a “pour-over” will that acts as a safety net if you forget to transfer an asset to your trust. When you die, the will “catches” the forgotten asset and sends it into your trust. The asset may have to go through probate first, but it can then be distributed as part of your overall living trust plan. Also, if you have minor children, a guardian will need to be named in the will.
No. A living trust is for financial affairs. A living will is for medical affairs; it lets others know how you feel about life support in terminal situations.
Age, marital status, and wealth don’t really matter. If you own titled assets and want your loved ones (spouse, children, or parents) to avoid Surrogate Court interference at your death or incapacity, you should probably have a living trust. You may also want to encourage other family members to have one so you won’t have to deal with the courts at theirincapacity or death.
DiMedio Law is a New Jersey law firm whose practice includes Trust & Estate Planning, Administration, Business Services & Succession Planning and related Real Estate and other matters. Contact us at [email protected] or call us at 856-428-5577.
DISCLAIMER: This advisory is for general information purposes only. It does not constitute legal advice, and may not be used and relied upon as a substitute for legal advice regarding a specific legal issue or problem. Advice should be obtained from a qualified attorney licensed to practice in the jurisdiction where that advice is sought.