Common Questions and Answers
About Your Living Trust
Q. Do I lose any control over my assets when I put them into my Living Trust?
Absolutely not. You still own the asset and as Trustee of your trust you have total and complete control over the asset. You can sell it, trade it, use it, or do anything with it after it is in the trust that you could do before you put it in the trust.
Q. Will my home be re-assessed for property taxes when I fund it into my Living Trust?
No. Transferring your home or other real property into a Revocable Living Trust does not cause a reassessment of your property and does not affect any mortgage on the property. Revenue and Taxation Code 62 specifically states that a transfer into a Revocable Living Trust does not cause a reappraisal or revaluation of the property for tax purposes and does not affect your homestead.
Q. Does a Living Trust protect my assets from lawsuits or creditors?
In most cases, no. A revocable trust does not provide any protection of assets from creditors or judgments. For tax and creditor purposes a living trust is ignored. In most states, all of the assets of a trust are treated as owned by the grantor if the grantor has a right to revoke the trust. The assets in the trust are essentially the assets of the grantor since he can revoke the trust at will, thus, if there is a judgment against the grantor the creditor is entitled to seize any assets held in the trust. The Spendthrift clause in a Living Trust does protect the beneficiaries of your trust from your creditors.
Q. Can my Living Trust be contested by my beneficiaries?
This is extremely rare. There is specific language in the trust which states that, if any beneficiary named in the trust contests their share of the trust, they will receive nothing. Assets funded into the trust are private and not a matter of public record, therefor it would be almost impossible for any creditors or outside parties to know what was in the trust affording them an opportunity to make claims against the trust.
Q. Do I also need a Will if I have a Living Trust?
Yes, and it's called a "Pour Over Will". It is included in every Living Trust and is there to be sure that any assets you may inadvertently leave out of the trust (unfunded assets) are "poured over" into the Living Trust after it goes through probate. If you had a previous Will in effect, it will become null and void when you execute your Living Trust. All of your current wishes regarding the distribution of your assets to your beneficiaries should be expressed in detail in your Living Trust. These wishes and expressions are amendable (can be changed) so it is wise to review those details from time to time and update them if you have changed your mind or want to change the participants to the trust...such as Successor Trustee/s, Power of Attorneys, or Beneficiaries in your trust. Heritage will make those changes for you free of charge.
Q. Can a Trust keep going after I die?
After you die your trust can continue to be managed by the Successor-trustee you selected. The trustee will distribute assets according to your direction. For example, the trust can hold assets for a child’s education or for a child who is not ready to manage the assets himself or for a child with disabilities. You can direct the trustee to do just about anything you want with your assets. A Living Trust cannot go on forever without a stated termination however. The Rule Against Perpetuity states that a trust cannot last more than 25 years plus lives (of the beneficiaries). Under this rule, the trust can remain in force and active for 25 years after the death of the Trustor (you), plus the life of the last living named beneficiary.
Q. What is the difference between a Living Trust and a Living Will?
A Living Trust is usually made up of several. documents, among them is a Living Will. A Living Will is a legal document that is included in a Living Trust that gives the physicians attending you to discontinue life support per your instructions in the Living Will document only if you are medically declared brain dead with no possibility of recovery. Without this document it would be illegal for them to pull the plug on you, even with spousal or family support. This document is sometimes known, in certain states, as the "Medical Directive". If you are ever hospitalized you will be asked for your Living Will when you are admitted.
Q. Can I put my IRA or 401K into my Living Trust?
No, tax qualified accounts such as IRAs and 401s cannot be funded into a Living Trust because they are issued to you with tax benefits and must stay in your name under your social security number. They are not exposed to probate at your death however, because they have a designated beneficiary and when you die the funds in those accounts will be paid directly to the person named as beneficiary on the IRA or 401 account. Some people favor making their Living Trust the beneficiary of the IRA or 401, which directs the payment to the Living Trust which can then be distributed to the Living Trust beneficiaries according to your wishes expressed in the trust.
Q. Are there an tax benefits to having a Living Trust?
Generally no. A Living Trust is transparent tax wise and has no tax identification of its own...that is until you die. It does not file a tax return. You continue to file your 1040 return every year, even though your assets are in your Living Trust. There is one tax benefit however. If you are married and have created a Marital Living Trust, your estate tax exemption is doubled at the death of the last surviving spouse. If you have a lot of assets this can be a significant benefit for your beneficiaries.
Q. Can I sell assets or add new assets to my Living Trust?
Yes, you can. As Trustee, you can sell assets and add new assets yourself without requiring a change of the Trust. In essence, you can do anything you want with your property while it is in the Trust. You retain complete control over your assets.
Q. When will I need to update my Living Trust
It is a good idea to review your Living Trust at least once a year with the professional that set it up for you. As a general rule, you should change your Trust anytime it no longer expresses exactly what you want. Any major changes in your family, such as marriage, divorce, death, birth, etc., could justify a change in your Trust. If your Successor Trustees or Guardians can no longer fulfill their responsibilities, you should make changes accordingly. You retain the power to make changes at any time to the heirs or successors of your Living Trust by simply entering an amendment to your Trust. You can do this yourself without the help of an attorney.
