Question: When should I create a trust? My assets include a couple of cars, my home, less than $100,000 in savings and a 401k. Do I need a trust?
Answer: A Revocable Living Trust can be beneficial for anyone, regardless of what they do or the amount of assets they own. The best time to create a Trust is now, because by the time you need it, you won’t be able to create it.
A Revocable Living Trust is a type of trust that is set up by a person while he or she is alive and can be amended or revoked at any time during the person’s lifetime. After death, the person’s trust becomes irrevocable, which means it can no longer be changed. The assets in the trust will then be distributed pursuant to the terms of the trust.
People typically create a Trust for the following reasons:
1. To avoid probate (which could create unnecessary family fighting) and probate costs;
2. To preserve their privacy (if a probate is required the contents of a person’s will become public record);
3. To plan for the distribution of assets to beneficiaries, which may or may not include distributing assets in one lump sum, and managing assets left to beneficiaries;
4. To plan for the management of assets should the trust creator become incapacitated; and
5. To protect trust assets from creditors (this is only possible after the trust becomes irrevocable).
When you create a trust, it is critical that you “fund” the trust, which is the process of transferring assets out of your own name and into the name of the trust. For example, this might mean changing the name on your savings account from John Smith to John Smith, Trustee of the John Smith Trust. You should also consider retitling your home into your trust, or using a Beneficiary Deed to transfer title of your home into your trust at death. Funding your trust is so important because a properly funded trust avoids probate. In fact, many people list avoiding probate as one of the main reasons to create a trust. A probate is typically required when someone owns assets in his or her own name that must be transferred into the name of the person’s heirs. A judge must oversee this process so the assets can be legally transferred. With a properly funded trust, when the person who created the trust dies, he or she does not own any assets in his or her name, and therefore a court action to transfer assets is not needed. Most people want to avoid probate because it is a public proceeding and can get very expensive with court costs, attorneys’ and personal representative’s fees. A probate proceeding also opens the door for potential heirs to fight over assets.
Many people have the misconception that they need to be rich to use or create a trust. However, as you can see, a trust is a very useful tool that can have benefits for everyone. You can create a trust without breaking the bank. Estate planning attorney Abigail Neal can create a comprehensive trust-based estate plan which includes a trust, last will and testament, health care power of attorney, HIPAA authorization, living will, personal property memorandum, certificate of trust, assignment of personal property and funding instructions. Learn more about our fixed fee estate plans for every family and call us today at (480) 699-7992 to get started.