Frequently Asked Questions About Living Trusts
Living trusts are a highly effective tool to use in your estate planning to maintain control over what happens to your assets after your death. However, many people do not have the same level of familiarity with living trusts as they do with wills.
Here are some of the most frequently asked questions we receive from estate planning clients about living trusts and how they work.
Q: What makes a living trust an important part of an estate plan?
The primary advantage to using a living trust is that any property you place in the trust will not have to go through the drawn-out (and occasionally expensive) probate process. This saves you a significant amount of money and time, as probate can go for months before inheritors finally receive their designated assets.
Q: What makes a living trust capable of avoiding probate?
One might wonder why living trusts bypass probate when wills have to go through the process. Most simply put, this is because the trust technically becomes the owner of any assets transferred into it before your death. After your death, the successor trustee (who you appoint to handle your trust) transfers ownership of those assets to your named beneficiaries.
Q: What type of work is required to hold property in a living trust?
You will need to complete some important paperwork to make your living trust function as desired. If, for example, you wish to leave your house in the trust, then you must create and sign a new deed that indicates you now own the house as the trustee of the living trust.
Q: Will a living trust protect its assets from creditors?
Living trusts do not offer creditor protection to the person who establishes the trust. A creditor who wins a lawsuit against you or your estate can still go after trust property as if it was owned in your name because you have not given up any control over that property. However, it will be more difficult for creditors to know who inherits some types of property, because the trust document will not become public, as a will would. However, with prudent drafting, a trust can deliver creditor protections to your heirs. Many trusts, including the ones we draft, have “spendthrift clauses” which prevent a creditor from attaching against a beneficiary’s irrevocable trust interest. So, as is so often the case in the law, the answer is “it depends.”
Q: Do I still need to create a will if I have a living trust?
Yes. A will is an important device that can back up your trust and express your wishes about any assets you haven’t placed in the trust. You can also include clauses in your will that outline how you wish to divide property that hasn’t been left behind to a particular beneficiary in your will or trust.
Q: Can a living trust help me reduce my estate tax liability?
A living trust is not a vehicle that will help you reduce your estate tax liability, because it is revocable. However, very few people have to worry about estate taxes to begin with, especially since the Tax Cuts and Jobs Act of 2017 nearly doubled the estate tax exemption limit.
These are just a few of the most common questions we receive regarding living trusts, but we encourage you to contact our firm if you have more questions about how these estate planning tools can work in your favor.
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Misha Gill is an Alexandria estate planning attorney for his firm, Speedwell Law, PLLC. If you would like assistance in setting up your own will, living trust, and other estate planning documents, Misha can be reached at (703) 553-2577 or [email protected].
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