1: How do revocable trusts differ from irrevocable trusts?
Answer: A revocable trust can be amended or canceled anytime during the trust maker's life. An irrevocable trust, however, is written in granite. The trust maker loses all control of the assets, cannot change the terms of the trust, nor receive benefits from the trust. The trade off is that the trust maker pays no income tax on profits or dividends earned by an irrevocable trust.
Almost all Living Trusts are revocable during the trust maker's lifetime but become irrevocable at the death of the trust maker (the successor trustee cannot alter the terms of the trust when he/she becomes the trustee).
Complex Trusts, Pure Trusts and Common
Law Trusts are part of the irrevocable trust family. Through a complicated
multi-trust arrangement they permit a trust maker to "manage"
his/her own irrevocable trust yet supposedly maintain a judgment-proof
status. Such trusts skate just inside the borders of the law and are
heavily regulated and watched by the feds.
2: Why do attorneys charge more for a Living Trust than for a Will?
Answer: In our computer-driven world where documents are created in minutes the attorney's "time and material" are about the same.
But a will is a "loss leader", like when a super market sells a quart of milk at a low price to get you in the store. When the client dies, the will brings the client's family back to the attorney for the expensive end of the sale: probate!
A trust, however, avoids probate which means that by selling the client a trust the attorney may not see the client or his/her family again. Probate fees are lost. To compensate for this loss of revenue, attorneys charge five to ten times as much for a trust as they do for a will even though their cost to produce either one is about the same.
3: Can a Living Trust save on taxes?
Answer: It depends on how you look at it. A Living Trust will save nothing on income taxes. Income taxes will come out the same amount, trust or no trust. Thus, no tax savings here.
When it comes to capital gains taxes, a trust won't save you a penny but can save your children a great deal of money as you will learn as you study the earlier steps of this workshop.
As far as estate taxes are concerned, certain terms can be added to a Living Trust - it's then called an A-B Living Trust - that will allow a married couple to take advantage of both of their estate tax exemptions, something that can't be done when assets are held in joint ownership. This can save a husband and wife thousands of dollars in estate taxes.
Will-advocating attorneys, however, are quick to counter that the same estate tax-saving provisions can be added to a will, which, they explain, means that in the end a trust has no tax advantage over a will whatsoever. However, this is a classic example of attorney half-truths.
What such attorneys don't mention is the fact that the client's heirs must surrender perhaps 25% of their inheritances in probate fees to take advantage of estate tax-saving provisions incorporated in a will. When such provisions are placed in a trust rather than a will, the heirs do not have to wade through months of probate at a cost of thousands of dollars. The savings come free of charge!
In addition, the surviving spouse has little control of or access to the funds when the decedent's B trust is created by a will. When created through a Living Trust, the survivor can use funds in Trust
B for a great variety of things. Thus, there are generally great tax savings with a Living Trust. However, they come through the back door rather than the front door.
4: Does the trustee actually own assets that have been transferred into a trust? Answer: No. Attorneys often tell sensitive clients this to soften the blow of loss of legal ownership of the assets. It takes far less time to tell them this little white lie than it does to explain why the trust maker(s) still has full control of the assets even though the trust maker no longer owns the assets.
A fictitious person or entity known as a trust and managed by the trustee owns the assets. It would be the exact same thing if you transferred ownership of your assets into the name of the city in which you live. The assets would then be owned by the city - not by the mayor.
5: Must an attorney draw the trust documents? Answer: Absolutely not. Many attorneys brazenly tell their trust seminar audiences that only an attorney can draw a Living Trust contract. They bet that no one in the crowd will know enough about the law or have the moxie to stand up and challenge them on this point.
Attorneys also do all they can to coerce banks, credit unions, register of deed offices and other financial custodians into insisting that an attorney draw all Living Trust documents. Because most bank/attorney relationships are mutual back-scratching affairs, and most banks succumb to this goading.
The truth of the matter is that the trust document is a private contract between two people that can be drawn personally by either person and cannot be challenged by a third party. That right is guaranteed to all American citizens in Article 1, Section 10 of the United States Constitution.
Attorneys that make such statements should be reported to the Bar Association, and the rare financial custodian that wants to belabor the point should have chapter and verse quoted to them immediately. Should they still wish to defend the indefensible, simply ask them to cash you out, then take your business elsewhere.
6: Can a Living Trust be an advantage over a will if I become incapacitated? Answer: Most definitely. Almost every trust contract allows the successor trustee to take over the management of the trust during some period of physical or mental incapacity of the original trustee. Two doctors are required to officially report that you are physically or mentally incapable of continuing the management of the trust.
No such thing is possible with a will. A will cannot kick into gear until someone dies. If you become incapacitated and have no trust, your family must go to Probate Court and have a conservator (money manager) and sometimes a personal guardian appointed for you.
In the event of your recuperation you do not have to petition Probate Court to restore you to your rightful place on the throne. You simply reverse the procedure by having the two doctors attest to your recovery and you are then once again in complete charge of your own affairs.
7: What is the ideal age at which to create a Living Trust?
Answer: Just as soon as you begin to accumulate assets. That can be as early as 18 to 20 years of age. However, in the fast-paced, modern world of the younger generation there is always the unpleasant possibility of divorce. Like all age groups, younger generations are often intimidated by the legal profession's centuries-old fabrication that estate planning and trusts are comparable to rocket wizardry.
Thus, younger adults erroneously shy away from trusts, believing that such an arrangement would complicate and prolong any financial settlement at the termination of a marriage. The truth is that such settlements take no longer when community assets are held in a family Living Trust than when in joint ownership. In fact, there are many cases where trust ownership of assets could have a decided advantage.
It is always difficult for young adults to visualize premature death. At age 21 almost everyone believes they are going to live forever, yet the obituary columns of any newspaper bespeak this not to be true. Young widows, young widowers and minor children are often unexpectedly caught in the clutches of Probate Court at a time when they need the use of every asset for house payments, insurance premiums, inflation-driven living expenses, and the education and preparation of those children for the life that stretches before them.
In a case of the sudden death of both parents, the neglected problems of guardianship, conservatorship and the intrusion of Probate Court into the lives of orphaned children can not only be devastating but also influence the personalities of innocent children for the rest of their lives.
Trusts are pretty much of a snap to set up at younger ages because there usually has not yet been any great accumulation of assets. The finest wedding gift any young bride and groom can give to each other is a revocable, working, breathing Living Trust. It is a keepsake that lasts beyond a lifetime.
8: What happens if I have neither a will nor a trust?
Answer: Welcome to the club! Actually, more than 70% of the populace go to their graves with the best of intentions but without a will or any estate planning. This omission has kept the probate attorneys busy for centuries.
In such cases, each state has its own set of rules called "intestate laws" that will determine who receives the assets. There is absolutely no consideration for wishes expressed verbally by the decedent before death. Intestate laws are hard-nosed, written in concrete and cannot be challenged. Money and other assets often end up in the hands of outcasts that would set the decedent spinning in his/her grave.
As example, the laws of most states dictate that after a predetermined amount is paid to the surviving spouse (if there is a surviving spouse) the balance shall be paid to the surviving children (if there are any surviving children) in equal shares. It might be that the first of three children walked out on the family 25 years ago and has not been heard from since. It matters not. The long, lost child - rich or poor, drunk or sober, drug-addicted or not - will inherit an equal share of the estate along with his/her two siblings who have for decades loyally and faithfully held high the torch of responsibility to their family. It is often been said that the only thing worse than having a will is having no will.
9: Will my Living Trust be affected if I move to another state?
Answer: Little, if any. First, remember that a trust is not a piece of paper but rather a technique of titling assets. It has no domain. It's like choosing to eat with your fingers rather than your fork. You can do either in any state of the union. Any asset recorded in the name of the trust is a part of the trust whether the asset is located in Utah, New Mexico. Vermont or any other state.
The laws of the particular state determined in the trust contract control each trust. If the contract says that your trust is to be governed by the laws of the state of Ohio, Ohio laws govern it even though you currently live in Montana. Upon moving to another state you may want to investigate local trust laws to determine if the laws of your new domicile would be more favorable to you than those of your old habitat (rarely are they less favorable).
To make a change, you locate the paragraph of the trust contract in which the designation is made (it is usually near the end of the document), draw a line through old state "Michigan," write new state "Wisconsin" above it, sign your initials and the change is made! A noteworthy exception to all of this is the state of New York which years ago (with a nifty bit of collusion between the banks and attorneys) passed a law that says you cannot appoint yourself as trustee of your own trust in the state of New York. That duty must be turned over to a bank, trust company or investment broker.
Not to worry, however. All trusts drawn in New York are written to be controlled by the laws of New Jersey, Pennsylvania, Rhode Island or any other state but New York!
10: Are successor trustees paid for their services in distributing the assets and terminating the trust? Answer: Rarely. Not only does the operation take just a few days, it should also be remembered that if the successor trustee(s) is also the beneficiary(s), the payment is simply deducted from his/her inheritance!
If the successor trustee accepts money from the trust in payment for services rendered, it must be reported as income on his/her 1040 income tax form. If the successor trustee carries out such duties gratis, the money will still be received but rather as an inheritance on which there is no tax.
11: Under what conditions should a bank or investment firm be appointed as trustee or successor trustee? Answer: Corporate trustees charge large fees to manage a trust. Yet there is no more to managing the affairs of a family trust than there is to managing an estate held in private ownership. Banks often offer the enticement of free financial advise to lure the trust maker. However, in this day and age free financial advice knocks at almost everyone's door three times a week, usually from some broker who claims he will make you rich if only you will switch your account to his office.
There are absolutely no changes in the reporting of taxes or record keeping. It is just the same old routine of writing the checks, making the deposits, keeping an eye out for profitable investments and maintaining the property.
The trust departments of banks are highly profitable and productive. The employees of banks with trust departments are charged with drumming up business for the trust department. Not only can the trust department charge 2 to 3% off the top of the estate every month to manage the assets of the trust, it is a well-known fact that much of the trust's funds end up invested in the parent bank's low yield CDs, etc. where the bank can use the customer's money to earn 15 to 20% in highly profitable automobile paper or credit cards. Also, many a widow can attest to having to beg a bank trust department for the return of enough of her own money to replace a worn-out refrigerator or buy an airline ticket to go spend Christmas with her kids.
If you are completely financially inept and If there is no one available to readily handle these mundane chores of managing your affairs then by all means hire a corporate trustee or corporate successor trustee. Though often hard hearted, they are fair, honest, thorough, available at the touch of a telephone, and don't call in sick. But be prepared to pay the piper.
12: If an attorney does not write my trust, how do I know it is legal?
Answer: First, keep in the mind the original and ultimate goal of your trust: to get your financial custodians (bank, stockbroker, credit union, etc.) to release your assets after you are dead, free from the fear of lawsuit, without the need of a guarantee from Probate Court. That is the name of game, and what "avoiding probate" is all about.
Who better to determine the legality of your trust document than the financial custodians themselves! You simply show the trust contract to your financial custodians and then ask them, point blank: "After I am dead, will you release my assets directly to my successor trustee, without the need of a guarantee from Probate Court, on the strength of this document?"
If the document contains the two basic elements of naming a trustee and a successor trustee, your financial custodian will answer "yes!" At that point you are home free and any opinion your attorney might have counts for nothing.
The attorney can bumble, grumble, intimidate, bully, browbeat and threaten you with every admonishment and caveat at the attorney's command that you are going to get in terrible trouble for not listening to him/her. But the fact remains: you already know your trust is a winner; you got it straight from the horse's mouth (your bank and other financial custodians).
All Living Trusts are self-proving and foolproof. They must be approved or rejected by the financial custodians themselves before the asset can be accepted into an account owned by a trust. Once the asset is accepted for safekeeping it must be returned upon the demand of the trustee. That means there is no such thing as an illegal Living Trust.
13: Should I have an attorney look over my self-created Living Trust contract? Answer: If you were worried that the check someone had just given you would bounce, would you take it to an attorney for an opinion? Certainly not! You would instead march the check right down to the people with the authority to cash it - the bank - and you would ask them: "Is this check any good?"
Again, the ultimate goal of a Living Trust is get the financial custodians to release your assets to your successor trustee after you die without a guarantee from Probate Court. Thus, you do exactly the same thing with your trust contract as with the check. You take it directly to the people with the authority to release your assets to your successor trustee after you are dead and you ask them: "Will this contract do the job?"
No court, no judge, no attorney has anything to say about the legality of your Living Trust. The financial custodians themselves determine that legality at the moment they accept your assets for safekeeping. They are then immediately obligated to release the assets upon the trustee's demand. That is the law.
14: My attorney says the will he wrote for me avoids probate. True?
Answer: No, it won't. But to satisfy yourself, take the will down to the bank or to the register of deeds or to any one of your financial custodians and ask them directly: "After I die, will you release my assets to the heirs I have named in this will without the need of a guarantee from Probate Court?"
If the financial custodian says "yes," you possess perhaps the most remarkable will ever written and it should probably be in the Smithsonian Institute. If the financial custodian says "no," I would suggest you immediately file a malpractice complaint with the State Bar against the attorney who misled you.
15: Why so much difference in Living Trust advice from one attorney to the next? Attorneys are business people. Each has his/her own agenda, goals, and competitors. Clients living in an altruistic world of honesty have problems coming to grips with the fact that in the end, attorneys, like everyone else, are first looking out for Number One. Just like any auto salesman, the attorney will put the knock on the competitor that is hurting him/her the most.
If it is in the attorney's best interest to procure an additional $500 for drawing dual trusts for each spouse rather than a government-recognized A-B Living Trust that would serve both, he will think of some justification why an A-B Living Trust won't work for that particular client. If the attorney wants to steer a client away from a local infestation of non-attorney, traveling estate planners, he/she may tell the client the falsehood that a trust drawn by anyone other than an attorney is not legal.
Attorneys are not the Living Trust know-all, end-all authorities that many people believe. Deep down, most attorneys hate Living Trusts and long to return to the days of unenlightened clients to whom they can peddle probate necessitating wills. They leave most of the Living Trust knowledge requirements to their secretary and her computer.
They often know just enough about trusts themselves that when coupled with a well-practiced courtroom face can slide them by the uncertain and tentative client seated on the other side of the desk.
Thus, before visiting any attorney in regard to a Living Trust, it is wise for the client to first bone up on all the Living Trust knowledge he/she can gather and hone his/her common sense to razor-like sharpness.
16: Is the assistance of an attorney needed to "fund the trust?"
Answer: Would you hire an attorney to open a checking account for you? Transferring funds to a Living Trust calls for the exact same procedure as opening a checking account - and is no more difficult.
Have your trust contract with you and simply ask the banker or other financial custodian to open a new account for you. At that point the banker or other financial custodian will pick up the ball and run with it while you sit back and watch. The job will be completed in about five minutes and you will be on your way home.
Real estate is transferred to a trust with a quitclaim deed that can be purchased at almost any office supply store. You will fill out the form on your dining room table in 5-10 minutes using information off your present deed or tax notice. When completed, have the quit claim deed recorded at the county register of deeds office. Total cost for deed form and registration: About $12. Real estate does not have to be "mortgage-free" to enable it to be transferred to a trust. A quitclaim deed is included in Our Living Trust.
17: Must all the assets be listed in the trust contract?
Answer: In a properly designed trust contract, assets are never listed. The trust contract simply states that any asset whose title lists the trust as the owner is indeed a part of the trust. When you list the assets in the trust, you must keep that list up to date which means amending the trust contract each time you buy, sell, or trade an asset, which means more money for the attorney.
Actually, there is a second and abstract reason. When an attorney can get all of the client's assets listed in the trust contract, it can give off a signal to the unenlightened that because the assets are listed in the trust there is no need to physically transfer the assets to the trust.
This omission will render the trust contract worthless and at death, the attorney will have to probate the estate after having charged thousands of dollars for a worthless trust that was suppose to avoid probate.
For $20, you can read and listen to secrets all estate planners know and keep from the public.
I having been doing this for 23 years. I have many secrets to reveal, and they will all save you and your loved ones a ton of money.
If you order two copies of my book,
I will personally autograph both of them for you, ship them to you
by priority mail, and pay the shipping. Click
here to read more about my new book