Estate Planning FAQs
1. What is estate planning?
– Estate planning is the process of organizing your affairs and structuring the ownership of your assets to ensure they are distributed or managed according to your wishes in the event of incapacity or death.
2. What is a revocable living trust?
– A revocable living trust is most often structured as a disregarded entity (for tax purposes) that holds legal title of your assets during your lifetime and allows for a smooth transfer of those assets to your chosen beneficiaries upon your passing. You can modify or revoke it during your lifetime.
3. How does a revocable living trust differ from a will?
– A will becomes effective after your death, while a revocable living trust operates during your lifetime and can provide for third-party management of your assets in the event of incapacity.
4. Why should I consider a revocable living trust?
– A trust allows for probate avoidance, provides privacy, offers incapacity planning, and can be more flexible managing your assets compared to no planning or planning with a will.
5. Do I need an attorney to create a revocable living trust?
– It is highly recommended to work with an experienced estate planning attorney, as they can help ensure your trust is properly drafted, funded, and executed.
6. What assets can be included in a revocable living trust?
– Generally, assets like real estate, business entities, investments, bank accounts, and personal property can be owned by your trust. However, some assets, like retirement accounts, typically continue to be owned by an individual directly and then name a beneficiary directly or the owner’s trust as the beneficiary of the account at the owner’s death. Such a trust must be properly drafted in order to minimize tax consequences of this outcome, and thus the working with an experienced estate planning attorney is extremely important.
7. How do I fund a revocable living trust?
– You transfer ownership of assets into the trust’s name. This may involve changing titles, beneficiary designations, or deeds, as well as creating assignments of business interests,.
8. Can I serve as the trustee of my own revocable living trust?
– Yes, you can serve as the initial trustee, retaining control over your assets during your lifetime. You should also appoint a successor trustee to manage the trust after your incapacity or passing.
9. Can I make changes to my revocable living trust after it’s created?
– Yes, you can amend or revoke the trust at any time while you are mentally competent.
10. What happens if I become incapacitated?
– If you’ve funded your assets correctly into your revocable living trust, your successor trustee can manage your assets for your benefit without the need for a court-appointed conservator.
11. What is probate, and why should I avoid it?
– Probate is a legal process that validates a will and oversees the distribution of assets. It can be time-consuming, expensive, and lacks privacy. A trust allows assets to pass to your beneficiaries outside of probate.
12. Are there any tax benefits to having a revocable living trust?
– Revocable living trusts do not offer specific tax advantages, but they can be part of a larger estate plan to minimize estate taxes.
13. How do I choose my beneficiaries and decide on asset distribution?
– Your attorney can help you determine the best distribution plan based on your goals and family situation.
14. Can a revocable living trust protect assets from creditors or lawsuits?
– While it offers some protection, it’s not a foolproof shield against creditors or lawsuits. Individuals typically acquire more robust asset protection through insurance and umbrella policies, limited liability companies, partnerships, and advance estate planning structures such as irrevocable trusts. Specific and individual advice from a competent estate planning and asset protection attorney is needed if you are worried about creditor and lawsuit protection.
15. Do I need a pour-over will in addition to a revocable living trust?
– Yes, a pour-over will is a safety net to catch any assets not included in your trust and ensure they are distributed according to your wishes. However, in order for the pour-over will to effectively transfer assets to a trust, it has to be probated, and therefore should not be relied upon as the primary means to fund a trust.
16. What are the costs associated with creating and maintaining a revocable living trust?
– The costs may include attorney fees for creating and amending the trust, as well as fees for transferring assets. These costs vary by region and complexity. In Arizona, a revocable living trust package (inclusive of many other documents) drafted by a competent attorney usually costs anywhere from $4,000 to $8,000 depending on the complexity of your situation.
17. How often should I review and update my revocable living trust?
– It’s a good practice to review your trust whenever significant life events occur, such as marriage, divorce, births, deaths, or changes in assets.
18. Is a revocable living trust a public document?
– No, it is a private document, unlike a will, which becomes a public record in the probate process after your passing.
19. What happens if I don’t create an estate plan or revocable living trust?
– Without an estate plan, the state’s laws will dictate how your assets are distributed, which may not align with your wishes.
20. Can I name a trust as the beneficiary of life insurance or retirement accounts?
– Yes, you can designate a trust as the beneficiary, but it’s crucial to work with an attorney to ensure it’s done correctly to avoid unintended tax consequences.
These FAQs provide a broad overview of estate planning and revocable living trusts, but individuals should always consult with an estate planning attorney to address their unique circumstances and concerns.