Living Trusts FAQS
Q: What is Probate?
Probate is a court supervised process used to distribute your property. The process takes a minimum of six months in Arkansas and can take years to complete if it is complicated or people disagree with the validity of the Will or the distributions. It often requires that lawyers or other professionals be hired. If you die without a will, your property will still have to pass through the probate system. If you die without a Will, your estate will be distributed according to the Arkansas intestacy statute.
Q: Why avoid Probate?
There are three main reasons to avoid probate: 1) Cost, 2) Privacy, and 3) the length of time probate takes.
Probate is not cheap or quick. Probate requires a hearing in busy Arkansas courts; the process will tie up your property for a minimum of 6 months and possibly years. This means your loved ones will not get the property you intended for them until the probate process is complete.
In addition, probate is very expensive. The Executor and attorney’s fees add up. If they were both allowed the maximum fees by Arkansas statute on a $500,000 estate the probate attorney fees would be $14,050 and the Executor’s fees would be $15,150 and that does not include court costs and other expenses. And unfortunately, you’re no longer around to do anything about it.
Not the Kind of Publicity You Want
The courts are public and do not afford privacy. Everything that comes before a judge is public record and the same is true with your estate. A Will is a very personal document, and may reveal private family and financial issues and concerns. After it enters probate it becomes public and can be inspected by anyone.
Q: What is a Revocable Living Trust?
A living trust, also known as a Revocable Living Trust or a Family Trust is a legal document that holds legal title or ownership to your property and assets. When you create a Revocable Living Trust you transfer ownership of your assets to your trust. When you transfer assets into the trust it is called “funding” the trust. When you transfer title you do not lose any control. You can still buy, sell, borrow or transfer any of your property.
To many a living trust is very similar to a will. It includes the details and instructions for how you want your estate to be handled at your death. Unlike a Will, however, a properly funded trust:
- Does not go through probate.
- Prevents the courts from controlling your assets at incapacity.
- Gives you control over the assets you leave to your minor children or grandchildren.
Q: What are the advantages of having a Living Trust?
A properly drafted and funded revocable living trust offers a number of estate planning advantages over dispositions under the terms of a Will.
Management of Assets in Event of the Grantor’s Incapacity: The trust can provide for management of the trust assets by a person you can select if the grantor becomes incapacitated through physical disability, incompetency, etc. Third parties frequently question the authority of an agent when they are attempting to use a power of attorney, so the revocable living trust is generally superior to that instrument.
Continued Property Management after Death: The trust provides management of the trust assets both before and after the grantor’s death. If the trust is funded properly, then it controls without interruption for probate and estate administration.
Avoidance/Reduction of Probate and Estate Administration Costs and Delays: The trust insulates the trust assets from the probate and estate administration process that assets passing under a Will are subject to, thereby saving those fees and costs. Moreover, it reduces if not eliminates the delays in distribution of estate assets that may result from probate. This could be particularly helpful if the grantor owns real estate in other states, which may otherwise require a separate probate proceeding in each state.
Avoidance/Reduction of Litigation: It is more difficult for a unhappy heir to contest a revocable living trust than a Will. During the probate of a Will, the heirs must be given written notice of their opportunity to contest the Will. A trust is not subject to this requirement.
Confidentiality of Dispositions and Identity of Beneficiaries: Upon your death, the Will is filed in the probate court and become available to the public and more and more is posted online through the court website. A living trust agreement is typically not filed in court system and does not become public record.
Selecting Law Most Favorable to Property Disposition and Administration: The trust may enable the grantor to avoid restrictions on disposition and administration of his property imposed by the law of the state of his domicile. These laws would apply to property passing under his Will. A living trust allows him to choose more favorable laws of another state to apply to the disposition and administration of the property placed in the trust.
To Act as a Receptacle for Non-Probate Assets: The trust can act as a receptacle for non-probate assets (life insurance proceeds, retirement plan death benefits, etc.) after death to coordinate their disposition under the plan along with the other assets you own.
Q: Will I Lose Control of My Property If I transfer it to a Revocable Living Trust?
No. Your property is still considered your property and you can use and enjoy however you desire. You still retain full control over your property, you may use the equity in your property, continue to take the tax write off from the interest on your mortgage, exchange one piece of property for another. Everything you could do before you had the trust, you can do after you have the trust in place. There are no changes in your income taxes. There are no new Tax Identification Numbers to obtain. A Living Trust is revocable, that means you can modify it at any time or revoke. You can transfer property in and out of the trust however often you desire. Upon your incapacity, the individuals you designate will be able to manage the trust on your behalf and they must follow the instructions you have given in the Living Trust. Upon your passing, the Living Trust can no longer be modified and the successor trustee(s) you have designated must then proceed to implement your wishes as directed by the trust.
Q: Do I have to transfer all of my assets to my Living Trust?
Wilson & Haubert, PLLC recommends that all property that can go into the trust be titled in the trust’s name. Sometimes our firm gets the call or is that the client has a small checking account that they do not want to “bother” to put into the living trust. The disadvantages to leaving it outside the trust depend on the circumstances for each situation. It can be very difficult to deal with the bank after the death of the account holder and having money outside the trust and outside the flow of distribution set up by the trust can cause problems.
Assets with beneficiary designations such as a life insurance policy or an annuity payable directly to a named beneficiary do not need to be transferred to your living trust. Furthermore, money from IRAs, Keoghs, 401(k) accounts, and most other retirement accounts transfer automatically on the death of the account owner outside of probate. Bank accounts can be set up as payable-on-death account (POD for short) with a named beneficiary and pass to that beneficiary without having to be titled into your trust. It is important, however, to seek the counsel of an experienced estate planning attorney who can advise on and assist with transferring necessary assets to your trust.
Q: If I transfer title to real property to my Living Trust can the bank accelerate my mortgage?
No. As long as you continue to live in that home .federal law prohibits financial institutions from accelerating your loan because you transferred the mortgaged property into your living trust. The only exception to the federal law is it does not provide the protection for residential real estate with more than five dwelling units.