Summary: Estate planning contains many options. One of these is the revocable living trust. While many people know that a living trust can help your family avoid the costs, hassles and time delays that may be associated with probate administration, there are many other facts about, and benefits of, living trusts that are less well-known, such the benefits your trust can provide you during your lifetime and the added level of FDIC protection that trust ownership of bank accounts may offer. These are just a few of the many useful pieces of information regarding what a living trust can do for you. A qualified estate planning attorney can give you specific information that is custom-tailored to your situation.
If you’ve developed much familiarity
with estate planning, there are probably certain things you know already. For
example, a properly funded living trust can help you avoid probate and powers
of attorney can provide valuable benefits if you become mentally incapacitated.
However, there are certain other things that are true about estate planning and
are less well-known, but are still really useful to have in your “knowledge
base.” Here are three of them:
(1) “Fully funding” your living trust
doesn’t mean funding EVERYTHING into your trust. You may have heard that, for
your living trust to best do its job in helping you avoid probate, it has to be
“fully” funded. Don’t misinterpret to mean that all of your assets go into your
trust. There are certain things that can stay outside the trust, and some that
absolutely SHOULD be owned by you, not your trust. Anything that has a death
beneficiary designation on it (such as pay-on-death accounts or
transfer-on-death-deeded property) can stay out. You should NOT fund your IRA,
401(k) or qualified annuities. Funding them into your trust constitutes what
the IRS calls a “complete withdrawal” and that can trigger some very harmful
tax consequences for you.
(2) A living trust isn’t actually a “will
substitute.” Many people call living trusts will substitutes. They do this because
living trusts can accomplish many of the same objectives as a basic will. The
big thing is, of course, that each can distribute your assets to your desired
beneficiaries upon your death and each one can designate whom you want to
oversee that distribution process. But calling a living trust a “will
substitute” is a bit inaccurate. Only a living trust can help you while you’re
still alive (which it can do by potentially helping you avoid the costs and
stresses of a guardianship/conservatorship proceeding in court.) Only a will
can do certain other things, like naming the person you’d like to act as the
guardian for your minor children. Each of the two documents has unique
abilities, which is why an estate with a living trust includes both a trust (or trusts) and a will.
(3) Your trust-owned bank account may
qualify for greater protection from the FDIC. While the frequency of bank
failures is less common than, say, in the 1930s, they do still happen, which is
why the federal government insures bank deposits through the FDIC. An
individual account generally qualified for protection up to $250,000. But a
trust-owned bank account generally qualified for $250,000 per beneficiary. So, if you fund your bank account into your trust
and your trust says that your asset transfer, upon your death, to your 4
surviving children and 2 of your grandkids, then that account could qualify for
$1.5 million in FDIC protection.
This is, undoubtedly, not a complete
list of lesser-known truths about living trusts, wills and estate planning. The
facts about estate planning can fill (and have filled) entire books. That’s why
it is important to work with a qualified estate planning attorney, who can
learn about your specific, individual needs and then apply all of his/her legal
knowledge to help you get the plan that best works for you.
This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com.
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