Frequently Asked Questions
- Business owners - Revocable Living Trust benefits?
- Children - How do they benefit from trusts?
- Handicapped dependents - How do they benefit from trusts?
- Joint tenancy with my children or heirs - Is it better?
- Living Will - Can it be ignored?
- Medicaid & Nursing Homes - Do Revocable Living Trusts offer protection?
- Pets - Can they be included in my plan?
- Power of Attorney or Successor Trustees - What problems may they encounter?
- Power of Attorney - Do I give up the right to manage my own affairs?
- Real estate - Properties in several states?
- Successor Trustees and Powers of Attorney - How do I choose them?
- Taxes - What's due after the last Trustor passes?
- Unmarried couples - Can they share a revocable living trust?
- Unmarried couples - Are there tax consequences ?
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How do I choose my Successor Trustees and Power of Attorneys? Your Successor Trustees will be managing your finances during your incapacitation, selling assets (such as home if instructed) after your passing, distributing assets to beneficiaries and managing assets for beneficiaries who are not old enough to receive their shares (see below). Therefore, it is important to pick fiscally responsible persons. Do not worry about hurt feelings of those you have not chosen for this role. Many people pick three or four Successor Trustees, having the top two choices work together as First Co-Successor Trustees. Either person can perform the above mentioned responsibilities if the other is unavailable. If one of these Successor Trustees is deceased or resigns, the third choice acts as replacement and so on. It is important to choose people who can work well together. Choosing Successor Trustees who live in the same state as you is not necessary as the estate will cover travel expenses and many duties can be performed from out-of-state. It is important to discuss with your Successor Trustees how to manage your assets when you are unable. An answer to a common question is yes - many people have adult children who are the beneficiaries also serve as the Successor Trustees. Your Durable Power of Attorneys, if you have all your assets transferred to your trust, will be responsible primarily for making your medical decisions. Your choices for this role may differ completely than your Successor Trustees. It is very important to discuss what type of decisions you would like made during an incapacitation. If you have a Living Will in place, you will not need to burden your Power of Attorney with deciding whether to place you on life support during a terminal condition. It is important to make a copy of your Living Will for your Power of Attorney. Back to Top
Instead of a will or trust, why not hold my assets in joint tenancy with my children or heirs? People often try to avoid probate by holding assets in Joint Tenancy. Joint Tenancy is the method of putting your child's name on property or accounts. Any good attorney or estate planner should warn you of possible risks. If you hold an assets with a child who later loses a judgement in a lawsuit, you could lose your assets held in Joint Tenancy with the child. Property held in Joint Tenancy with a child will lose half of the stepped-up valuation. If you bought your home in 1955 for $25,000 and today your home is valued at $200,000 after your death your child would only received the original cost basis of $25,000 and not the market value. They would have a big capital gains tax bill! However, if you would have passed the home to the child in a Living Trust they would have inherited the home at the market value and not had a capital gains tax due. Back to Top
How do Living Trusts provide for minors? Most people agree it is unwise for a minor to receive a large inheritance. Using a Living Trust, an underage's inheritance will remain in the trust until the underage child reaches the age specified by the Trustor(s) of the trust. For example, the Trustor(s) could choose 1/3 to be received at age 25, another 1/3 at age 30 and the remainder at age 35.
Should a beneficiary need money for:- Health
- Education
- Maintenance
- Support
How do Living Trusts provide for handicapped dependents? Should a beneficiary at the time of the last Trustor's passing be receiving disability income, it is important to restrict the distribution of the deceased's estate to that beneficiary so not to disrupt the flow of federal assistance to the beneficiary. The trust may hold the beneficiary's share of the estate in the trust and receive distributions only as needed through the Successor Trustee. Back to Top
Can unmarried people share a revocable living trust? Yes. Unmarried couples may put together what is called a common-law trust. The pros to a common-law trust include avoiding entanglements with families and avoiding probate for a significant other. Some disadvantages include assets of both are at risk if one of them is sued and, after the death of the first person, the survivor is in full control of all assets and trust language. An alternative is having two living trusts to keep assets separate. If two, separate living trusts are preferred, Four Peaks Planning, Inc. offers a discount on the second trust. An answer to a common question is no - family members, such as siblings, can not setup a common-law trust together. Back to Top
Are there tax consequences such as gifting for combining assets? No - not if the assets are properly titled into the trust. Back to Top
How do I plan for my pets?
Often, pets are not included in estate plans. To ensure ongoing and proper care, consider addressing your pets’ needs along with other loved ones. Of course, pets cannot be named as beneficiaries of money or property from your estate. So, what are your options?
While a will often lacks the structure to provide for adequate care, a properly written trust is an ideal planning tool. In addition to covering many other family estate-planning needs and avoiding time-consuming and costly probate, a trust can ensure appropriate care for your pets.
A trust can designate someone to care for your pet, name someone to manage and distribute money to the pet's caretaker and stipulate charitable contributions to animal shelters once your pet has passed on.
Two steps can avoid added grief for your family and pets.
- Talk to family and friends to see who would enjoy caring for your pets.
- Determine how much money needs to be set aside to care for your pets for their lifetimes. How much do you typically spend a year on food and vet bills?
What taxes are due after the passing of the last Trustor? Income taxes are due for the year the Trustor passed. Estate taxes are due only for estates over $2.0 Million in 2006. In 2010, there is no Estate Tax but in 2011, many planners are preparing the the Estate Tax limit to return to around $1.0 Million dollars. If you estate this year is worth $2.0 Million and you, as the last surviving Trustor of your trust, passed, estate taxes would be due only on the $500,000 over the $1.5M limit. The tax rate is around 45%. If you are married, your trust may be set up as an A-Disclaimer Trust which can double your estate tax exemption (hence, this year the exemption on your estate would be $4M). When the first spouse passes, the surviving spouse has the option within nine months of splitting the estate into two trusts. The first trust's assets would be at the surviving spouse's disposal. The second trust's assets are not to be used except for Health, Education, Maintenance or Support. Setting up the second trust only requires contacting the IRS for a Tax-ID number to assign to the second trust. Back to Top
What if I own real estate in several states? If you own out-of-state real estate, a living trust will help your heirs avoid going through probate in each state property is owned. To title real estate , the change in title is accomplished by executing and recording a deed to the property. Back to Top
Can a bank deny my Power of Attorney? State laws vary as to whether they penalize a third party for refusing to honor a power of attorney document which appears to be valid on its face. It would be necessary to prove that a third party honoring the document either knew or should have known that the document was a fraud or had been revoked in order to hold the third party liable for any loss to the principal. Whether a principal could sue for damage resulting from a failure of a third party to honor a power of attorney is uncertain. The best answer to the question is to avoid the problem by being prepared. Principals should be certain to contact any financial institution where they have accounts, safe deposit boxes, securities and the like, as soon as the power of attorney is executed. Copies should be provided and any form that any of the institutions require of the principal or attorney-in-fact, such as authorizations or signature cards, should be executed. This generally avoids any difficulty. It is also wise to have a power of attorney notarized even if it is unlikely that it will ever require recording. The notary seal will provide extra authentication for any wary third parties. The best solution is establish a revocable living trust. A bank will always recognize a successor trustee if the original trustee if incapacitated. Back to Top
If I appoint a power of attorney or establish a successor trustee, do I give up the right to manage my own affairs? No. As long as a principal/trustee remains legally competent, he or she retains full control over his or her affairs. The principal/trustee may allow the attorney-in-fact/successor trustee to act or not at the sole discretion of the principal/trustee. A principal/trustee may cancel the power of attorney/successor trustee at any time without requirement of a reason. Back to Top
Will a Living Trust protect my estate if I go to a nursing home and require Medicaid? No. Many people think that putting their assets into a Revocable Living Trust will help them qualify for Medicaid because the assets would no longer be titled in their name. Because a Living Trust is revocable and under your complete control you have not "given anything away." The assets are still available. Nursing home care is expensive. The average cost is close to $50,000 a year. Like many people, you may think Medicare pays for it, but unfortunately it does not. Medicare covers only short periods of skilled nursing home care after a hospital stay. Many nursing home residents have to pay the full cost of their care when they are admitted but they deplete their savings and other assets by paying for care. As a result, they will eventually qualify for Medicaid. Back to Top