WHY CREATE A LIVING TRUST

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Every State has laws which control who obtains ownership of assets of a deceased person.  If a person fails to do any "estate planning", these laws determine the who, what, how, how much, and when issues for the deceased person.  When a person dies without a "Will", the person is said to die "intestate".  These laws also protect creditors of deceased individual.

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ESTATE PLANNING is the process by which a person can determine and control what happens to their assets upon their death and which assets are accessible to creditor claims.  The most common legal document used in estate planning is  a "Last Will  and Testament".  

 

HOWEVER, both the State's default intestate version of what happens AND the deceased individual's version, set out  in a "Will"  require a probate court proceeding and an Order signed by a Judge to become effective. The proceedings are public. Names and addresses of heirs for intestate individuals are public, and the terms of a "Will" are public. Newspaper notices are required. The assets and debts of the estate are public.  It often takes months or even years to settle and distribute the assets of a probated estate.

 

The legal purpose of probate is to judicially transfer clear title to assets which had been owned by the decedent.  However, before that happens, creditors are first given an opportunity to file and pursue their claims against the estate. 

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Even though holders of secured debts, such as mortgages and car notes, have a lien on assets to assure that they are paid, the probate process gives secured lien holders an opportunity to satisfy their claim from the assets of the entire estate rather than just from the specific asset on which they have a lien. Unsecured creditors are also given an  opportunity to satisfy their claim from the assets of the entire estate.  This can result in assets being forced to be sold to satisfy debts even though the asset may have been in the family  for generations.

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Under the best of circumstances, there are attorney fees and other costs associated with probate proceedings.  Both of these alternatives can also result in expensive, time-consuming. protracted contested Court battles.

 

In addition, while the court proceedings drag on, there are often additional ongoing expenses such as property taxes, utilities, storage fees, and insurance premiums that have to be paid.  It may take months before the executor or administrator has access to funds to pay these expeneses.  Some estates may have assets but no cash.  Even if the Court allows assets to be sold to raise funds necessary to pay ongoing expeneses, it takes additional time to get back to court to have a hearing requesting to authorize the sale of assets.  

 

Most often, these expenses as well as final expenses, succh as funeral expenses are paid by the executor or an heir from their own funds with expectation that they will be reimbursed at a later date. 

AN EASIER, QUICKER, LESS EXPENSIVE, PRIVATE WAY...

 

A LIVING TRUST is another type of Estate Planning legal document desgined by individuals to control what happens to assets upon the owner's death.  However unlike "Wills" and the "State" default plan, LIVING TRUSTS AVOID PROBATE!

 

So, what is a "TRUST"?

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A Trust is a legal entity authorized by the state to be created by agreement between two parties for the benefit of a third party.  Every trust has three parties.  Those are the "creator" of the trust (also known as the "settlor" of the trust), the "Trustee" of the trust who agrees to accept and adminster assets placed into the trust by the creators of the trust,  and the "beneficiary" of the trust.  Each of these can also include more than one person.  

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ONE PERSON CAN be the settlor, the trustee and the beneficiary.   In the case of a  Living Trust created by a husband and a wife, the trust would have two settlors.  Usually when spouses create a Living trust, the spouses both also serve as the initial Trustees of the trust and, they are usually the primary (first) beneficiciaries of the trust.  

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Ultimately, one or more successor Trustee/s will take over after the death of the settlors.  The trust agreement will have set out what the creators of the trust want to have happen to their assets after their death.  This distribution plan is often identical to a distribution plan that would be contained in a "will".  It may also set out that some or all of the assets are to be continued to be held in trust for "contingent" or secondary beneficiaries.  The successor trustee may have been told to sell the assets and distribute cash to secondary beneficiaries or to convey assets to certain individuals.  All of this is done by the successor trustee/s without any permission by a court and without any delay.  This means that less ongoing expenses are incurred.  In that regard, the creator's of the trust often have set aside some cash for the benefit of the successor trustee to use for paying ongoing expenses.  

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Although a Living Trust can be amended or revoked, should the  last of the creators of the trust become incapacitated,  a successor Trustee, desginated by the creators in the trust agreement is authorized to  manage the Estate while the  owner is still living without Court intervention.

Otherwise, when a person becomes unable to handle their own legal affairs, it is often necessary for a Court to appoint a Guardian for the person. The Court proceeding to appoint a Guardian and to oversee the actions of the Guardian  is usually even more expensive than probate proceedings. Two attorneys are required, one for person applying to be the guardian and one appointed by the Court to represent the incapacitated person. The Guardianship and Court proceedings continue as long as the person is alive.

A Living Trust  designates a Trustee to manage all of the incapacitated person's property and affairs.  It does not require Court involvement.  This process allows for immediate management of the incapacitated person's assets and affairs without waiting through the long delays (and costs) of Guardianship Court proceedings.

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In many ways, probate and the delay in settling and distributing probate assets has less to do with passing title to  assets than it does with protecting creditors.  However, since Living Trusts avoid probate, the assets in the Living Trust  that are protected from forced sell by unsecured creditors of the estate and the entire delay caused by the probate process.

 

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