If you have properly funded and created the trust you can place any piece of property that you could own in the name of the trust and bypass the probate process. This means that your boat, your luxury vehicles, your home, or vacation property can fund the trust and would therefore not have to go through probate once you pass away. This is a great benefit for you and for your family given how long and slow the probate process can be. What we want to avoid is a situation where your family has to pay taxes and court costs associated with property items that could otherwise be immediately transferred to a beneficiary who can use them for some positive good after you have passed away.
You can also make your trust the beneficiary of life insurance policies that you own so that that trust can be funded with those life insurance proceeds when you pass away. We know from prior videos on estate planning that life insurance is not something that has to go through probate, anyway. Because the life insurance document names a beneficiary it would bypass the probate process regardless of who is named as the beneficiary. However, if you are someone who has a trust then you can make sure to name that trust as the beneficiary of a life insurance policy and both bypass probate and fund the trust without going through too much trouble.
Choosing who will manage your trust assets after you pass away
Another one of the key benefits of having a trust is that you are in a position where you can determine who will manage your affairs if you become incapacitated. It is also true that you can name a successor trustee to the trust to handle trust affairs after you pass away. This is a valuable tool, especially for those of you who want a direct way to influence how trust property is handled after you are gone. Hopefully, you have multiple people in your life who can make good decisions with property and who would be in a position to step into that role as trustee.
Suppose, that you were in a situation where you became incapacitated. This incapacitation was something that resulted from a freak accident but made it so you were not in a position where you could take care of your financial matters on your own. As a result, you would need to be able to name someone who could step into that role as a trustee and make good decisions for your property. That may be a parent, sibling, your spouse, or someone else entirely. As long as that person has a high level of trust with you then you can feel good about naming him or her to that role. You can begin to interview people for that responsibility before even being in a position where you would be incapacitated. That way, if the situation arises and you do become incapacitated you can already complete paperwork to position this person to be a successor trustee.
A trust can protect property
Let’s think about this situation from the perspective of you as a mother or a father. Suppose that you have multiple children who all handle money at varying degrees of success. You may have two children who are quite good with money, live on a budget, and otherwise do not seem to make major mistakes when it comes to their spending. On the other hand, you may have one child who struggles with their finances and is not yet disciplined enough to make good choices for themselves when it comes to property. Try as you might to have a discussion with him or her about these shortcomings he or she has been unwilling or unable to attend to the deficiencies as you see them in their daily life.
How would this affect their ability to be named as a beneficiary in a trust created by you? To start with, your child may be a good person who you do want to see benefit as being a part of this trust. In a perfect world, you would benefit all of your children equally by naming them as beneficiaries in the trust. Unfortunately, you believe that your child who is not good at handling money could harm themselves were they given access to millions of dollars in one lump sum. For a person who does not know how to handle money very well giving this person a lot of money all at one time could be a recipe for disaster.
This does not mean that you should remove him or her from the trust although it would be completely up to you as to whether or not that happened. However, you would have the ability to protect property in the trust if you do not want that beneficiary to be able to receive property without conditions attached. For example, if you were to pass away the property that you had accumulated would not necessarily have to pass directly to your child. Rather, the property that you list in your will could fund a trust. That trustee would be able to hand the property out to your child over time or upon certain conditions being fulfilled.
Those conditions can range from long-term conditions to short-term conditions. For example, you could list that your child would need to complete their four-year degree before he or she receives any property out of your estate. Or, you could choose to say that your child would need to learn how to budget their money and take a personal finance class of some sort to receive money out of your state. The property could be kept safe in your trust so that there were no concerns regarding the safety of it or the safety of your child and coming into too much money too quickly.
Why you may want to think more about well they’re to create trust
Even though the benefits of a trust are many, there are also potential drawbacks that you should be aware of when it comes to trust creation. When you create an irrevocable trust then that means that the trust cannot be changed no matter what else comes up in life. You cannot just say that you are going to tear up the trust document and then go back and take the assets back and put them in your name now that you no longer want the trust to exist. Rather, that trust cannot be changed until the trust expires. This could happen at the time of your death, when all the property is distributed, or at a certain date in the future.
Another potential problem with the creation of a trust is when you name someone as a trustee who is no longer someone that you trust. It does sometimes happen that the trustee that you name and your trust is someone who goes off and does their own thing without honoring you, the trust, or the trust language. Trustees can also sometimes fall into a situation where they listen to the demands of beneficiaries too much thus compromising the property that they are supposed to be maintaining. Having a good trustee is a positive part of having a trust. However, having a bad trustee would eliminate all of those positive aspects of the trust and can put you in a situation where the trust becomes more of a negative than a positive.
Finally, I would like you to think about a situation where a single beneficiary can cause the purpose of the trust to become bogged down. Let’s say that you have a trust which is intended to benefit all of your children. You have three children who are set to receive property out of that trust over time. However, you have one child who is named as a beneficiary of the trust and requires additional financial support financially.
In a situation like this, you would need to have a trustee who is extremely strong from an emotional and logistical perspective. It could be easy for that trustee to become influenced by the beneficiary who needs additional support. It would not be the first time that a beneficiary would attempt to influence a trustee to help him or her when it comes to handing out money early or otherwise giving him or her benefits under the trust that is not called for and the trust language. This can result in wasting trust assets and taking up precious resources which harms the principal amount of the trust as well as the other beneficiaries who are not asking for special treatment from the trustee.
Even if your one child does have a legitimate need for income or financial assistance that does not mean he or she deserves to receive special treatment under your trust. This may be a situation where you are better off naming your needy child within a special needs trust that can better account for the problems and needs of their life. However, if you decide to name all of your children as beneficiaries under the same trust then you need to make sure that there is specific trust language that is a part of that trust which can help to keep the beneficiaries and trustee on the same page.
One of the great difficulties with creating trust is that it puts families like yours in a situation where they can be taken advantage of or otherwise forced to see families go through difficult circumstances regarding money. We all know that money can cause people to act irrationally and out of character. As a result, you do not want to put the trustworthiness of a trustee to the test or put your beneficiaries in a position where they may not be able to receive out of the trust what you intended.
Benefits of a revocable living trust
it is normal to be concerned with how your heirs will handle their share of your estate once you pass away. A revocable living trust is one way that can help you to keep control over your assets even after you have passed away. Coming up with some language in a contract or other agreement where you can name a trustee to manage your assets will create a revocable living trust. Any adult who is not incapacitated can create a revocable living trust. You as the person who created the trust will be known as a grantor. You could even act as trustee of the trust while you are still alive.
We all know that creating a will is the most basic, tried, and true method of estate planning we have available to us. A will is certainly a necessary method in tool to be utilized in your estate planning toolbox. However, that does not mean that a will is not limited in what it can do. These limitations can put you in a position where there are unnecessary delays in distributing property and that can create issues in distributing property to beneficiaries after you pass away.
What you can elect to do is to combine the strengths of a will with a trust. A revocable living trust still passes outside of probate as we have gone over previously. This helps your beneficiaries a great deal when it comes to saving time, expense, and hassle that comes with almost every probate case. Additionally, by creating a revocable living trust you can position yourself to adapt to situations that can change rather quickly in your life. When we talk about a revocable living trust, we can see that there is flexibility that is added to your estate planning or you can fund the trust with various properties or remove assets from the trust while you are still living.
If something were to come up in your life that would be a dramatic change in circumstances, then your trust could be changed along with those updated circumstances. Or you could even choose to dissolve the trust and make it so the property is put back into your name. As the composition of your family changes over time you may want to change aspects of the trust. Additionally, as years go by the value of the property contained in the trust may increase it may lead to different changes as far as how you want that property to be handled while you are living and then distributed after you pass away. Once you do pass away the trust can no longer be changed, and the terms as outlined in the trust documents would need to be followed as far as distribution of property is concerned.
Another key benefit to having a revocable living trust is that your private family matters will remain that way. Were you to become incapacitated this would not mean that your family situation would have to go through the probate process and thus become part of the public record. By keeping your case out of probate, you would not need to have news of your passing submitted to a newspaper or other publication so that potential creditors could come forward to collect on any unpaid debts.
Control over your property is an important aspect associated with a revocable living trust. You can complete directions for handling your property and utilizing it in a way that would maximize its value for your family or any other beneficiary. So long as you avoid becoming incapacitated you would have complete control over utilizing the property net trust however you see fit so long as it stands to benefit the lives of your beneficiaries.
We have already discussed how probate cases tend to take a considerable amount of time and can cost you a great deal in terms of money. If you choose to establish your legacy through a will just know that the expenses that come up do not happen just for you. Rather, you can choose to avoid running into these costs by creating a trust that can bypass the probate process altogether.
Saving money is also part of the estate planning process associated with trust creation. When you go through probate there are costs associated with the process. An experienced estate planning attorney with the Law Office of Bryan Fagan can give you advice and perspective on how to structure your trust for saving money both in taxes and in other ways. Contacting our estate planning attorneys today means that you can begin to develop a strategy geared towards saving money and resources on behalf of the beneficiaries listed in the trust itself. However, the first step towards starting on this journey is to reach out to our office today for a free-of-charge consultation.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our experienced estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning as well as about how your family’s circumstances may be impacted by the filing of a probate case.