You can designate a successor trustee in a living trust who can oversee your assets if you lose mental capacity without continuous court oversight. It can also help you avoid or reduce taxes. However, a Trust is a costly option to set up. So why does it cost more than a Will?
Record-Keeping
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Unlike a will, a living trust requires ongoing record-keeping. Your attorney will set up the Trust and help you transfer your assets. These steps are costly. But they can save your heirs money in the long run by avoiding probate. When you die, your trustee will distribute your assets per the stipulations in your living trust. If your estate goes through probate, that process can take weeks instead of months or years. Your trustee will keep records of all transactions and investments, including capital gains and losses. This information will be helpful to your heirs should they ever question a transaction.
Your trustee should also retitle cars and other property, update investment certificates, re-deed real estate, and contact companies to change beneficiaries. It may require the help of a professional to ensure that all of your assets are included in the Trust and that the trustee knows where they are located.
You will likely need a separate bank account for your Trust assets. Combining personal and Trust funds can lead to confusion and potential legal disputes. Your trustee must also keep accurate records of all Trust disbursements, expenses, and other investments. It is not a burden that most people enjoy, but it is an integral part of the job.
Legal Fees
How much does a living trust cost? A living trust may cost more than a simple will, especially if an attorney prepares it. However, it’s essential to remember that a simple Will does not protect assets; only a revocable living trust can do that. In addition, the cost of a revocable living trust also includes drafting documents to transfer property into the Trust, which can be expensive. In addition, some types of assets may require the payment of filing fees to change ownership from individual to trust, such as a joint tenancy, life insurance, in-trust for bank accounts, or pension, Keogh, and retirement account plans.
Probate avoidance is the primary benefit of a revocable living trust. Probate proceedings can be costly and time-consuming. However, it can also reveal personal information that the grantor or beneficiaries might prefer to keep private. Unscrupulous living trust salespeople often charge elderly consumers thousands of dollars for a set of forms that are often ill-suited or even contrary to these consumers’ estate planning needs. A simple will is often sufficient for most individuals’ estates. A trust is only necessary if significant or complicated assets must be transferred to beneficiaries at death. Regardless, it’s always worth discussing your situation with an experienced attorney to see whether or not a trust is right for you.
Taxes
A living trust may cost more upfront but can save you a lot in the long run. You can save money and time by transferring assets to the Trust instead of going through the costly and drawn-out probate process, which in some states can cost up to 7% of your estate value. You’ll also avoid the fees and expenses related to record-keeping and title transfers during probate.
To make your trust work, you’ll need to retitle all of your property and accounts into the name of the Trust. For instance, you’ll need to contact banks and other entities that hold your assets, such as retirement plans, brokerage accounts, and non-qualified annuities, to retitle them into the Trust. It can take some time and may require updating your beneficiary designations.
Once the trustee distributes the Trust’s income to beneficiaries, it must file a tax return. It will include information about the Trust’s income and a K-1 form for each beneficiary that shows how much of the distribution came from income and principal. The trustee must also submit the tax return to the IRS by the due date.
While some believe that trusts are geared primarily toward high-net-worth individuals and families, even those of modest means can find them helpful. For example, many people create a living trust to ensure that a loved one with a special needs condition receives the care they need. They can also use a trust to protect their assets from creditors, spouses, and future death taxes.
Trust Administration
In addition to the legal fees, trustees must pay the deceased person’s taxes and provide information to beneficiaries about income and expenses that flow into and out of the Trust. They also need to protect the assets in the Trust and maintain a record of where those assets are located. A trustee is also responsible for obtaining necessary insurance policies and paying the deceased person’s home mortgage. According to the conditions of the Trust and each trustee’s unique financial circumstances, Trustees may be paid a certain amount for their services.
The trustee’s responsibilities can be complicated and time-consuming, but experienced trust administration lawyers can help. They can review the trust document to ensure it has all the required provisions and is up-to-date. They can help settle disputes between beneficiaries and handle asset distributions in compliance with the trust terms. They can also advise the trustee handling ongoing financial or tax matters.
A well-drafted living trust can save your loved ones money and hassle after you die. It can also protect your privacy and offer more protection if a provision of your Trust is challenged in court than a simple will. However, creating a living trust is only sometimes cheap. If you have sizable assets, it is essential to consider the upfront costs of a Trust against the future savings and convenience that it can provide.