Living Trust Frequently Asked Questions

 Posted on December 12, 2022 in Estate Planning

What is a Living Trust?

A Living Trust is created by a person or couple to hold title to certain property and distribute things upon death or incapacity consistently with the trust agreement. The creator of a trust is called a "grantor" or "trustor". The grantor or trust creates a trust with the specific purpose of providing a smooth and effective transition upon death or incapacity.

Another name for a trust is a family trust or revocable living trust or grantor trust. 

Does a living trust avoid probate?

A living trust is a private document, which means that no court proceedings are required if a person properly re-titles their assets. Probate court is required when you have a will because a will is a document that one must file to properly activate it. Probate involves proceedings at a local courthouse, which determines who is the rightful owner of one’s assets upon death or otherwise known as a “decedent’s estate”. In probate court, one’s creditors must be paid, and creditor’s claims are determined which creditors are prioritized over others (in some instances).

Is it expensive to create a living trust?

No, it is not expensive to create a living trust. A living trust begins at $1,000 to $1,5000 in attorney’s fees and goes upward depending on one's assets, complexity, and level of sophistication required of the living trust.

Does a living trust get filed at the local courthouse?

A living trust is a private document, which the public has the right to see. A will is considered a public document because it is filed at the local courthouse. Filing a legal document at the local courthouse makes it public information. On the contrary, a living trust is a private document and does not get recorded nor filed at the local courthouse. Therefore, a living trust is a private document. 

Does a living trust protect property from creditors?

Yes and No. No, a living trust document does not protect the assets of the creators of the living trust. A living trust is revocable, which means that it is like holding assets in one's name. A living trust usually operates with one's social security number. 

Yes, a living trust provides basic asset protection for the beneficiaries of the trust. The beneficiaries that inherit under the terms of a living trust have "spendthrift protection". Spendthrift protection means that the living trust limits a beneficiary's creditors from accessing a beneficiary's creditors, unlike a will.

Do I need a will when I have a living trust?

A living trust and pour-over will work complimentary with one another. A pour-over will is different than the last will. The last will are created by a person and administered through probate court. The last will and testament are public information and must be filed in the county where the decedent died. Unlike a last will and testament, a pour-over will is a safety mechanism that works jointly with a living trust to distribute and administer property that never was transferred into the living trust's name. A pour-over will is public information and is distributed to the living trust, unlike a last will and testament. Therefore, the terms of a living trust are kept private, and the pour-over will preserve a person’s right to privacy.

Can a living trust reduce estate taxes?

A living trust does not reduce estate taxes automatically. However, a living trust does employ estate tax strategies, which directly eliminate or reduce federal and state estate taxes. A will does not assist with estate taxes. In Illinois, the estate tax threshold in 2022 is $4 million. The estate tax threshold means that the first $4 million per spouse is exempt from estate taxes in the State of Illinois. For example, a couple should not pay the estate taxes if set up the correct way unless they have greater than $8 million in assets.

What are the advantages of a living trust?

There are three main advantages of a living trust. The first benefit is avoidance of probate court by placing re-titling assets in the living trust’s name. By re-titling assets into the living trust’s name, the trust agreement shall govern the distribution of a person or couple’s assets upon their death or incapacity.

The second benefit of a living trust is privacy. Privacy means that the living trust is not a public document like a last will and testament. The living trust terms are kept secret by the creators of the trust and the beneficiaries of the trust are the only people that are privy to the terms of the living trust.

The third major benefit of a living trust is it is designed for incapacity and death, unlike a will. A last will and testament are designed to be only a legal instrument that takes effect upon one's death. A trustee of a living trust takes over upon signing and can administer one’s assets right away during their lifetime.

The fourth major benefit of a living trust is the ability to protect one’s beneficiaries. A spendthrift provision protects a beneficiary of a trust because it provides creditor protection. Creditor protection means that a creditor of a beneficiary cannot access a beneficiary's inheritance received by the living trust, unlike a will.

What happens when one receives an inheritance from a living trust?

When a person receives an inheritance from a living trust, the trust agreement describes who shall inherit specific assets of the living trust. Unlike a will, which must be administered through a court process, a living trust is administered in the privacy of one’s home. The trust agreement describes who shall inherit the property of the living trust. A person may have to take a death certificate and proof that a living trust exhibits and show that a person is the trustee and has the power to distribute the property of a living trust.

Can you sell your house if your house is titled in a living trust?

Your primary residence should be transferred into a living trust after execution. This transfer is called a “Quit Claim Deed in Trust”. A Quit Claim Deed in Trust is the process of transferring one’s house into their living trust. A living trust appoints a trustee, which is legally responsible and empowered to make decisions for the living trust. The trustee can sell or refinance a property if the trust agreement gives a trustee the ability to sell the property. It is understood that a trustee should have the ability to sell or refinance the property. A trustee has any right that an individual has if the property was in their name.

Should My Spouse and I have our own separate trust or a joint living trust?

A joint living trust is recommended for most spouses. However, a separate living trust is beneficial in certain circumstances such as a blended family or where the non-marital property was inherited or created outside of the marriage. A Yorkville Estate Planning Lawyer can assist you and your partner decides what is the best estate planning strategy for you.

How Does a Living Trust work?

A living trust works by a person or couple creating a trust. The person or couple that creates a living trust is called a grantor or trustor. The grantor or trustor create a written agreement, which details their specific wishes upon their death or incapacity. Similarly, to a will, the creator of a trust creates a trustee. The trustee is responsible for administering their trust while they are alive. The trustee is the creator of the trust while they are alive and healthy. Upon incapacity or death, the trustee's role transfers to whomever the creators of the trust belief is (or are) the appropriate person or persons to administer their wishes upon their death or incapacity.

CONTACT AN OSWEGO ESTATE PLANNING ATTORNEY TODAY

Peace of Mind Asset Protection, LLC specializes in estate planning and asset protection to provide the best wealth strategy to protect one's wealth and smoothly transfer one's assets upon death or incapacity. Contact Peace of Mind Asset Protection, LLC today at 630-882-2467.