Your Second to Last Will: The Benefits of Using Living Trusts
As the saying goes, one should hope for the best but plan for the worst. Some of our clients come to us asking for a “simple will”, because they want to leave “everything to their spouse and then to their children equally” and they hope for the best. Our job is to plan for other possibilities and that means recognizing that death may not be the worst case scenario. Medical advances have increased the chances of being temporarily incapacitated before we die. If you become incapacitated or someone contests your will after you die, you will leave your loved ones a lot of headaches that could have been avoided with a good Living Trust.
Your estate, or everything that belongs to you when you die, is within the jurisdiction of the Probate Court and your will is used as evidence of how you wanted things to happen and who you wanted to be in charge of your assets after you die (your “Personal Representative”). Since Probate is an open, public court proceeding, anyone who disagrees with how your Personal Representative is handling things (including the judge) is entitled to their day in court and your estate’s assets will be used to pay any legal fees and costs incurred by your Personal Representative throughout the process. By transferring assets to a Living Trust during your lifetime, they are kept out of your estate when you die because they legally no longer belong to you. The Trustee you choose for your Living Trust takes over when you die and administers the assets privately according to the terms of your Trust. No one other than those you name in the Trust need to be notified and no court filing is made.
Pitfalls of Joint Ownership
Some people try to avoid Probate by transferring their assets to someone else or holding them together with others as joint owners with rights of survivorship. There are also asset protection advantages to this strategy, but only because you are simply giving away your assets to someone else. While this does avoid Probate, your co-owner’s lack of asset protection planning could still leave “your” property exposed to the consequences of an unplanned death, bankruptcy, divorce or lawsuit against your joint owner. Another downside is that the transfer can require the payment of documentary stamp tax in the case of real property and have gift tax consequences for transfers over $14,000. Moreover, you could lose control of the asset. Not so with a Living Trust.
Since a will goes into effect only after you die, the Personal Representative named in your will cannot take charge if you are incapacitated. In fact, without proper planning, no one can act on your behalf to manage your affairs until the court conducts guardianship proceedings to appoint a legal guardian which, like probate, can be a long, expensive, public process where any interested party has a right to be heard in court and express their opinion regarding who should or should not be your guardian. The Trustee for your Living Trust takes over not only when you die, but also during any period of incapacity, thereby removing your Trust’s assets from the reach of an unintended legal guardian or misguided judge.
Given the downside of having your estate go through Probate and the risk of having a judge decide who will speak for you when you are incapacitated, anyone with any kind of assets should consider implementing a Living Trust.