Answers are provided to common trusts, wills and power of attorney questions by Attorney Richard M. Barron.
Q. I have a Living Will, isn’t that the same as a regular will?
A. No, a living will is for medical purposes, it lets others know about your decisions on life support, end of life (terminal situations), and medical requests you may have. A regular will, directs your spouse, a family member, or someone you trust, to dispose of your assets after you decease, all being overseen by the court system.
Q. I have a will. Why would I want a living Trust?
A. Contrary to what you’ve probably heard, a will may not always be the best plan for you and your family, primarily because a will does not avoid probate when you die. A will must be verified by the probate court before it can be enforced. Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. So the court could easily take control of your assets before you die—a concern of millions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will—the revocable living trust. It avoids probate and lets you keep control of your assets while you are living—even if you become incapacitated—and after you die.
Q. What is a living trust?
A. A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids probate at death, can control all your assets, and prevents the court from controlling your assets if you become incapacitated.
Q. If I have a Living Trust, do I still need to have a Will?
A. Yes, you need a “Pour-Over Will” that will act as a safety net should you forget to transfer an asset into the Trust. When a person dies, the will “catches” the forgotten item and sends it thru to your trust. Depending on the asset, it may or may not have to go thru probate first, but it will eventually be distributed as part of your living trust.
Q. Does a trust inside a will do the same thing as a Living Trust?
A. Not quite, will’s contain wording that creates a testamentary trust to provide savings in estate taxes, care for minors, care for adults who cannot take care of themselves, etc. Since the Trust is part of your Will, it does not become effective until you die and the Will has to be probated.
Q. How does a living trust avoid probate and prevent court control of assets at incapacity?
A. When you setup 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 an wife” to “Bob and Sue Smith, trustees under trust dated (month/day/year).”
Legally you no longer own anything (don’t panic: everything now belongs to your trust), so there’s nothing for the courts to control when you die or become incapacitated. The concept is very simple, but this is what keeps you and your family out of the courts.
Q. Is it hard to transfer assets “fund” my trust?
A. No, and your attorney, trust officer, financial adviser and insurance agent can help. You need to change the titles on real estate (in- and out-of-state) and other titled assets (stocks, CDs, bank accounts, other investments, insurance, etc.). Most living trusts also include jewelry, clothes, art, furniture, and other assets that do not have titles.
Also, beneficiary designations on some assets (like insurance) should be changed to reflect your trustee of your trust in certain situations so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. (IRA, 401K, etc. can be exceptions.)
Q. Should I consider a corporate trustee?
A. You may decide to be the trustee of your trust. However some people select a corporate trustee(bank or trust company) to act as trustee or co-trustee now, especially if they don’t have the time, ability or desire to manage their trusts or if one or both spouses are ill. Corporate trustees are experienced investment managers, they are objective and reliable, and their fees are usually very reasonable.
Q. If something happens to me, who has control?
A. If you and your spouse are co-trustees, either of you can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, the successor trustee you personally selected will step in. If a corporate trustee is already your trustee or co-trustee, they will continue to manage your trust for you.
Q. What types of Trusts are most commonly used?
A. Revocable and Irrevocable, are the two (2) types of trusts that most attorneys draft for planning purposes.
A revocable trust is a document that you always have control over, as it pertains to managing your assets which you hold under your trust. When you become incapacitated or decease, a family member or spouse that you have named as a co-trustee or successor trustee then takes over.
An irrevocable trust is a trust that you can create, but have limited or no control over. Most irrevocable trusts are created for a multitude of purposes. The Most common irrevocable trusts created, are for Estate tax avoidance, Gifting, Special Needs of children or a spouse that can no longer manage their affairs. Your elder care attorney can further explain these types of trusts, should they need to be implemented.
Q. What is probate?
A. Probate is the legal process through which the court sees that, when you die, your debts are paid and your assets are distributed according to your will. If you don’t have a valid will, your assets are distributed according to state law.
Q. What’s so bad about probate?
A. It can sometimes be expensive. Legal/executor fees and other costs must be paid before your assets can be fully distributed to your heirs. If you own property in other states, your family could face multiple probates, each one according to the laws in that state. Because these costs can vary widely, be sure to get an estimate.
It takes time, usually nine months to two years, but often longer. During part of this time, assets are usually frozen so an accurate inventory can be taken. Nothing can be distributed or sold without court and/or executor approval. If your family needs money to live on, they must request a living allowance, which may be denied.
Your family has no privacy. Probate is a public process, so any “interested party” can see what you owned and who you owed. The process “invites” disgruntled heirs to contest your will and can expose your family to unscrupulous solicitors.
Your family has no control. The probate process determines how much it will cost, how long it will take, and what information is made public.
Q. Doesn’t joint ownership avoid probate?
A. Not really. Using joint ownership usually just postpones 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.
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be a gift and/or income tax problems. And since a will does not control mostly owned assets, you could disinherit your family.
Q. Why does the court get involved at incapacity?
A. If you can’t conduct business due to mental or physical incapacity (Alzheimer’s, stroke, heart attack, etc.), only a court appointee can sign for you-even if you have a will.(Remember, a will only goes into effect after you die.)
Once the court gets involved, it usually stays involved until you recover or die. The court, not your family, controls how your assets are used to care for you. This public process can be expensive, embarrassing, time consuming and difficult to end if you recover. It does not replace probate at death, so your family may have to go through probate court twice!
Q. Does a general power of attorney prevent this?
A. A general (durable) power of attorney lets you name someone to manage your financial affairs if you are unable to do so. However, many financial intuitions will not honor one unless it’s on their form. And, if accepted, it may work too well-giving someone a “blank check” to do whatever he/she wants with your assets. It can be very effective when used with a living trust, but very risky when used alone. It is the recommendation of your Elder Care Attorney that you check with each of your financial institutions to see if they have a specific power of attorney form they want you to complete for them, or if they will accept your legally drafted power of attorney as a matter of record.
Q. Are there different types of Powers of Attorney?
A. Yes, you have several types of Powers of Attorney: Medical Powers, Springing Powers, Immediate Powers, and Limited Powers, each serving a purpose that allows you to appoint someone to make certain decisions in the event you cannot handle your affairs. As a general rule, your power of attorney documents should be reviewed and updated every 3-5 years, as the laws change and your personal situation may change.