One of the benefits is the fact that you maintain control of the resources while you are alive and well, because you retain the right revocation and you can act as the trustee.
On the other hand, since you retain incidents of ownership in this manner, the assets would be part of your estate for tax purposes, and they would be available to litigants if you are sued.
The living trust is not a comprehensive cure-all, but a small percentage of people have to worry about estate taxes and lawsuits. There are different types of trusts that can be used to protect assets, and we will look at them in a future post.
Assets Left Out of Your Trust
If you establish a living trust, it will not have any value if you do not convey resources into it, so the funding is part of the process. This being stated, you may acquire property over the years that you never signed over to the trust.
One of the benefits of a living trust is the avoidance of probate. This is the legal process that would be necessary if you use a will to state your final wishes. The will would be admitted to probate, and the court would supervise during the administration process.
The transfer of assets that are not held by the trust would be subject to probate. In fact, if you die in Vermont and you own out-of-state property that is not in the trust, ancillary probate would be necessary. There would be two simultaneous probate proceedings in the different states.
There is also the matter of incapacity. When you have a revocable living trust, you name a successor trustee to assume the role after your passing. You can give this individual or entity the ability to manage the trust in the event of your incapacity if you choose to do so.
However, the disability trustee would have no ability to manage property that is not held by the trust. Under these circumstances, the court would be petitioned to appoint a guardian to manage the assets.
The best way to avoid complications is to make sure that you convey all of your property into the trust, but there is a safeguard that you can include. A pour-over will would allow the trust to absorb assets that were in your direct personal possession at the time of your death.
If you include this document, the probate court would be involved, but the outcome would be predetermined for the most part.
In addition to the probate avoidance benefit along with the ability to prepare for possible incapacity, there is another benefit that is a priority for many people.
If you have someone in the family that is not good with money, you may have concerns about the way they would handle a significant lump sum inheritance. Bequests that are distributed through the terms of a will are transferred without any safeguards going forward.
This is not required if you have a living trust. You can include a spendthrift clause, and the trust would become irrevocable after your passing. The successor trustee would follow the instructions that you leave with regard to the nature of the distributions to the beneficiary.
You could instruct the trustee to distribute the earnings that are generated by the principal broken up into monthly increments, and portion of the principal can be added to equal a dollar amount. The plan could allow for a sum distribution when the beneficiary reaches a certain age.
This is a random example, but you would control the way the assets are distributed to the beneficiary.
Another positive is the efficient estate administration. When the trust owns all or most of the resources that comprise the estate, the asset identification process is streamlined for the trustee.
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We are here to help if you are ready to work with a Burlington, Vermont estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at 802-879-7133.