Trusts - Kent A. Jeffirs, Attorney at Law, Crown Point, Indiana

Trusts
	What is a Living Trust? A "living trust" is a legal document that, like a will, spells out your wishes for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids guardianship if while you are living if you become disabled and avoids probate upon your death. A living trust accomplishes this by holding title toy our assets so that upon your disability or death the assets are no longer legally in your name. Thus, the successor trust you name in your trust may handle your affairs as stated in your trust without court involvement. Living trusts can be amended and revoked by you at any time. The person creating the trust, often called the "settlor" or the "grantor," typically retains complete control and use of the property placed into the trust. The grantor can also be the trustee in Indiana, although the grantor's spouse or a trust company also often serves as trustee. The terms of a living trust are established in a written agreement signed by the grantor and the trustee. A living trust can be funded with bank accounts, stocks and bonds, a home and other assets. The terms of the living trust provide for the handling of your property in the trust both during your lifetime, and upon your death.
What is the purpose of a Living Trust? A living trust may have many purposes. A common goal is to avoid "probate." Assets within a living trust will generally not be subject to the jurisdiction of the probate court, either while the grantor is living or following the grantor's death. Assets owned in your name and not contractually payable on death will generally be subject to probate unless a revocable trust is created. Will I save estate and inheritance taxes with a Living Trust, compared with a Will? No. It is a common misconception that federal estate and Indiana Inheritance tax savings can be achieved with a living trust, but not with a will. While use of a living trust will avoid probate proceedings, avoiding probate does not mean avoiding estate and inheritance taxes. The assets in a living trust are part of a person's gross estate for estate and inheritance tax purposes, just the same as probate assets. However, both the will and living trust, when properly written and with advice on the proper ownership of assets during lifetime, may include estate and inheritance tax avoidance techniques that may save substantial tax dollars for the benefit of your family. Will having a Living Trust avoid challenges by my beneficiaries or heirs? Disgruntled heirs or beneficiaries can challenge the validity of a living trust on legal grounds similar to those available for challenging a will. Claims may be made that a living trust is invalid because the grantor was incompetent at the time of establishing the trust or was unduly influenced by some person to establish the trust in a particular manner. Further, although the time period for challenging the validity of a will can be limited to three months, there may be a much longer time period under which the validity of a living trust can be challenged. However, because Indiana law provides more and stricter requirements for making a will then the law does for making a trust, more ways to challenge a will are available than there are to challenge a trust. What are the advantages of a Living Trusts compared to a will? Compared to a will which must go through probate, there are many differences, but also some similarities in the manner in which property is administered with a living trust if you become disabled or following your death. Some of the advantages of a living trust are: Avoids Guardianship. Living Trusts provide for the handling of you assets in the event you ever become disabled by your successor trustee whereas a will has no effect during your lifetime. If you become disabled and you have a will, you must have a court appointed guardian to handle your financial affairs as long as you are disabled. Living Trusts avoid guardianships upon your disability as well as probate upon your death. Speed of Transfer. A trustee could begin making distributions of assets to beneficiaries moments after the death of the grantor. A personal representative cannot make distributions until he or she is appointed by the court after the will is admitted to probate and the court has authorized the distributions. Lower costs. The costs of the probate process include Court costs, Appraisal fees, Personal Representative fees and Attorney fees. While court costs will vary with the activity in the estate, presently a typical cost range will be $175?$300. A living trust would not bear these costs. Appraisal fees will typically be incurred in probate for real property, and may be incurred for other "hard to value" assets, such as expensive artwork or closely held corporations. These costs may not be required by a living trust. If, however, the deceased person's assets are of such value that a federal estate or Indiana inheritance tax return must be filed (which will often be the case), it may be prudent for the trustee of a living trust to secure appraisals of those assets to help establish value for estate tax purposes. Appraisals also aid in establishing the basis of the assets for federal income tax purposes. Privacy. The terms of a living trust are contained in a private document, while the terms of a will, including beneficiary designations, become a matter of public record once the will has been filed with the probate court. In addition, other information filed with the court during the probate process, such as the inventory of assets and the written account of all receipts and disbursements of the estate, also become matters of public record. The administration of a living trust is generally not made public. 5. Control. The absence of any requirements to file the trust or any reports with a court increases the independence and control of the trustee, relative to a personal representative of an estate in probate. Personal representative and attorney fees in probate estates are set by the probate court state law and are based, generally, on a percentage of the gross value of the assets of the estate. In Lake County, Indiana, probate fees can be a maximum of 10% of the gross value of the estate (without deductions for mortgages, liens or debts). A trustee of a living trust is generally entitled to a fee for services performed similar to those performed by personal representative of an estate, although the level of compensation is not set by law. Just as a personal representative hires an attorney to assist in the administration of a probate estate, a trustee normally hires an attorney to assist in the administration of a living trust following the death of the grantor. If the terms of the living trust do not require the preparation of an inventory or the preparation of accounts, as typically they do not, the attorney fees will generally be lower for services to the trustee because time related to probate filings will not be incurred. However, the cost of attorney advice and services with regard to income tax and estate tax issues is likely to be equivalent whether provided to the personal representative of a will or to a trustee of a trust. Avoidance of multiple probate proceedings. Finally, if homes or other real property are owned in a number of different states, use of a living trust may be especially useful to avoid separate probate proceedings in two or more states. What are the Disadvantages of Living Trusts? Transfer of assets to trust. The implementation of a living trust is likely to be more time consuming and far more tedious than would be the case with only a will. The single most common defect in the creating of a living trust, where the goal is to avoid probate, is the failure to transfer ownership and title of assets into the name of the trustee. Simply creating the document will not work ? the assets must be re-registered, re-titled or otherwise validly transferred to the trustee of the living trust. Further, an individual needs to remain vigilant that all assets acquired after creation of the living trust are placed into the living trust. Otherwise, those assets must go through probate. Initial Costs. While a living trust will often save significant money for you and your family compared to probate following death, a will is less expensive to create. The costs associated with creating a living trust are more than those for creating a will. In addition, there are costs incurred in properly transferring assets to the living trust. In general, however, the time and money saved by creating a living trust and avoiding the time and costs of probate will greatly outweigh the additional costs of creating a living trust. Absence of court review. The administration of a living trust will not be supervised by any court. While this avoids the paperwork burden and expense imposed by the probate process, persons creating a living trust should consider that the trustee they appoint will not be accountable to a judge for the honest and accurate distribution of assets unless a beneficiary were to bring a lawsuit. Will a Living Trust help me while I am living? Yes. If you become incompetent or otherwise incapable of handling financial affairs and you have a living trust in place, it is not then necessary to have a guardian appointed by the probate court to administer your assets and pay your bills. Will a Living Trust save income taxes? No. The income of the living trust will be taxable to you as if the trust did not exist for income tax purposes. Also, if you are not the trustee or a co-trustee, then the living trust must obtain a separate taxpayer identification number and thereafter file its own annual tax returns which may result in higher income taxes being paid. Will a Living Trust protect my assets against creditors? Creditors are entitled to reach the assets of your living trust during your lifetime. Creditors may generally reach the assets of any trust you create to the extent that you are able to enforce your own rights to trust assets. Upon your death, creditors may or may not be barred from enforcing claims against your living trust, depending on the circumstances of creation and administration of the living trust. A surviving spouse may not have the same elective share ("forced inheritance") rights against a living trust as would be available against a will in probate. Can I preserve assets in a Living Trust and still qualify for Medicaid? No. The assets in your living trust are "countable resources" for purposes of Medicaid qualification. The assets in your living trust are treated just the same as if you owned them. If I decide a Living Trust may be right for me, how should I set one up? If you decide that the use of a living trust may be right for you or if you are uncertain whether a living trust would be beneficial, please contact our office. At Kent A. Jeffirs, Attorney at Law, we offer a FREE half hour consultation to discuss what type of estate plan is right for your particular situation. You can also call or e-mail us to request this FREE half hour consultation. After reviewing information at your initial consultation concerning the nature, title and value of your assets and liabilities, and following discussions with you concerning your goals for the use of your property during lifetime and following death, we will provide you with an estimate of legal and other expenses involved with the drafting and implementation of a living trust plan. The drafting of a living trust, like most other legal documents, requires professional judgment if the best results are to be ensured. We can help you avoid the pitfalls and help you choose the legal instruments and plan best suited for your situation.