ANSWERS TO COMMON QUESTIONS REGARDING “REVOCABLE LIVING TRUSTS”

1.   What is Estate Planning?

In simple terms, estate planning involves putting your financial affairs in order so as to maximize the benefits that your assets can provide to YOU during your life and to those you desire to benefit from it after your death whether it be your family, friends, and/or your favorite charity.

Essentially, estate planning is a process that has three (3) objectives in mind.

• To insure that your assets will pass at your demise to those persons you designate in a manner which will give them the maximum benefits;
• To reduce or completely eliminate the federal estate tax; and
• To provide for the passing of your assets at your demise to your chosen beneficiaries without any court involvement and with limited costs, time delays, and inconveniences.  In other words, complete avoidance of Probate Court.

2.   What does a Proper Estate Plan Include?

A proper estate plan to provide for you and your family’s needs may include:

• Last Will & Testament
• Revocable Living Trust Agreement
• Designation of Putient Advocate
• Durable Power of Attorney

3.   What is Probate?

Probate is when the court oversees that the final debts of a deceased person are settled and legal title to property is passed from the decedent to his/her beneficiaries.  The court will appoint a personal representative to handle all the administrative matters of the estate and the court will remain involved until the closing of the probate estate.  The absolute minimum for a probate estate to be administered in this state is four (4) months from the opening of the estate.  However, the average amount of time is in excess of seven (7) months and only if everything goes smoothly.  There are additional fees and costs involved with a probate estate that includes inventory fees, filing fees, and attorney fees.

4.   Can a Well-Drafted Will Avoid Probate Court?

NO.  All wills must be probated.  Wills are simply your instructions to the court as to how you want your assets to be distributed after your demise.  You can also designate a Guardian and Conservator for your minor children in your will.

5.   Can a Living Trust Avoid Probate?

YES.  As discussed below, the trust is an independent legal entity which maintains legal ownership and title to your assets.  Upon your death or incapacity, this legal entity (your Living Trust) survives and continues to maintain legal ownership even though you are deceased.  Your assets are then distributed according to the specific instructions that you prepared in your Trust FREE and CLEAR of any probate court involvement.

6.   What is a Revocable Living Trust?

While you are alive, a revocable living trust is an agreement between YOU and YOURSELF.  You can always amend, alter, and even terminate the Trust while you are alive.  The Grantor is the person who creates the Trust which would be YOU and the Trustee is the person who handles and manages the assets of the Trust which would be YOURSELF.

A Trust is an independent legal entity that you have created.  You transfer legal ownership and title of your assets out of your individual name and the name of your Trust.  There will be no limitations as to how you spend, use, and control YOUR assets that are owned by the Trust.

7.   Is the Living Trust Required to File a Separate Income Tax Return?

NO, you will continue to report your income and deductions on your individual tax return.

8.  Can the Living Trust Be Used to Avoid Estate and Inheritance Taxes (Death Taxes)?

YES!!  A married couple can avoid being taxed on up to $2,000,000.00 of marital assets by simply executing and funding Living Trusts.

9.  What are Other Benefits that Living Trusts Offer?

• avoidance of probate court involvement and delays in distributions
• eliminating or avoiding capital gains taxes
• maintaining privacy of family assets and finances
• avoidance of conservatorships
• creditor protection for your beneficiaries
• control of distribution and management of assets during life and after death
• reduction or complete avoidance of estate taxes

10.  What Would Happen if I Did Not Have a Will or Trust?

If you do not have a Will or a Trust, then upon your death your assets will pass according to the laws of the State of Michigan.  The State’s plan may not provide for those you desire to obtain your assets, and if it does, it often presents the following problems:

• higher estate taxes
• additional expenses including inventory fees, probate court fees, and attorney fees
• delay in distributions to your beneficiaries
• necessity for a court supervised conservatorship for assets inherited by a minor child

11.  It Appears that my overall assets at the time of my death will be below the Federal Estate Tax Exclusion Amount.  Therefore, Do I Really Need a Revocable Living Trust?

By preparing a revocable living trust your estate will be guaranteed to avoid probate court.  That in and of itself is a huge benefit as the person that you have appointed as successor trustee will be able to begin the administration immediately free and clear of any court involvement.  In addition, inventory fees and filing fees will be completely eliminated and there should be reduced attorney fees.

Your beneficiaries would also receive your property through inheritance which could eliminate any capital gain tax issues that would come into play if you listed your loved ones as a joint owner(s) of your assets.

Once your Will is submitted to the probate court, it becomes a “public” document that anyone can view.  Your Trust is a “personal” document that only includes the involvement of the people that you have named within.

Prepared by:
Timothy P. McGlinchey, Esq.