Building Life Plans, One Client at a Time

Living Trusts Are Living Documents

Many of us delay putting together a living trust. Even if we have one, we have a tendency to view it as something we’ve completed, not as something we need to update regularly. In this post, we’re going to ask an estate planning attorney to tell us why a living trust is a very important document and why we need to make sure our living trusts are up-to-date. In future posts, we’ll look at other types of trusts that our clients and friends may find valuable.

Faraz Sattar: Please explain the basic concept of a living trust and why everyone should have one.

Rabea Chaudhry: A revocable living trust is a tool that provides for the management of property transferred into the trust both during your lifetime and upon your death. Revocable living trusts help avoid the need for a conservatorship in the event that you become incapacitated, and they also facilitate the distribution of your estate outside of probate court. These trusts can be revoked or amended, and you don’t need to file a separate tax return for assets held inside the trust.

You can customize a revocable living trust to implement your wishes regarding how your beneficiaries will receive their inheritances. For instance, if you remarry but have children from a previous marriage, a revocable living trust can be used to safeguard the inheritance of those children while also providing for your current spouse and the children you share. It can also specify that a beneficiary’s inheritance be kept in trust during the beneficiary’s lifetime or until the beneficiary reaches a certain age. If you have a beneficiary with a disability, you can place the disabled beneficiary’s inheritance into a special-needs trust which, if drafted properly, can provide for the disabled beneficiary without affecting the person’s ability to qualify for public benefits. Revocable living trusts can also be drafted to include customized inheritance schemes that comply with religious and personal beliefs.

One thing to keep in mind is that revocable living trusts do not guarantee that estate taxes will not be due upon your death. If your estate is large enough that you are worried about the amount of estate taxes that will be due when you die (in 2013, gross estates larger than $5.25 million were taxable), it is a good idea to speak with an estate planning attorney to explore ways to minimize estate-tax liability.

Faraz: What kind of skills do you look for when choosing a person to handle your living trust?

Rabea: When you select an attorney to draft your revocable living trust, look for professional competence as well as empathy. Creating a living trust means that you will be planning for the possibility of your incompetence and deciding what will happen with your estate when you die. This is an emotionally taxing process, so it’s important to work with a professional who is willing to work at your pace and ensure that you are comfortable throughout the process.

Faraz: What is the process that someone will go through when first setting up a living trust?

Rabea: When you work with an attorney to set up a revocable living trust, you will be listing the assets to be transferred into the trust and specifying how these assets will pass along to the named beneficiaries. You will also be naming individuals or institutions to eventually manage your trust assets as successor trustees. The trust document will specify the responsibilities of the trustees in managing the trust assets and will, among other things, specify the process by which a trustee can step down and how the trustee should account to the beneficiaries for the management of the trust assets.

Your attorney may also help you execute a pour-over will to name guardians for any minor children and to state that the terms of the revocable living trust should also apply to any assets that have not been transferred into the revocable living trust by the time of your death.

Your attorney is likely to advise you to execute an advanced healthcare directive to specify how you would like end-of-life care decisions to be made, including the names of the people whom you would like to make those decisions on your behalf. You may also be advised to execute an accompanying financial power of attorney to name people to handle various financial matters on your behalf.

Faraz: Why is it important to keep your living trust up-to-date?

Rabea: Once you have established a revocable living trust, you shouldn’t just put it away for safekeeping and check it off your list. It’s a good idea to review the document at least once a year and to have an attorney or professional advisor review it every three to five years. Changes to your personal and financial circumstances and to tax laws may warrant either an amendment or a restatement of the trust so that it can be adapted to your evolving situation and address any changes to state and federal tax codes.

When reviewing your living trust, keep in mind the effect of major changes in your life such as: newly acquired assets that may need to be transferred into the trust; a marriage or divorce; a move to a new state; changes in your relationships with successor trustees; changes in your relationships with beneficiaries; and changes to a beneficiary’s circumstances.

Please feel free to contact us with any questions by calling (925) 365-1533 or by sending an e-mail to lifeplan@accretivewealth.com.

We thank Rabea Chaudhry for providing our clients and friends with this valuable information about living trusts. Rabea is an estate planning attorney servicing clients throughout the Bay Area. You can reach her at (650) 260-5215, Rabea@RYCLaw.com, or www.RYCLaw.com. Rabea’s contribution to this blog was not intended to create, and did not create, an attorney-client relationship between the reader and Rabea Chaudhry. The information contained in this post is not intended as legal advice. You should consult legal counsel before acting on any information presented in this blog post. Rabea Chaudhry is only licensed to practice in California, and will not advise anyone on the laws of any other state.

IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any matters addressed by this communication.

 

Accretive Wealth Management is not a law firm and cannot provide legal advice.

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