I have many clients who call me and tell me they have heard they want to set up a living trust.  I often ask where they heard that they need a living trust and I get all types of different answers.  Some read about trusts on the Internet, which others have been told they need a trust by their friends or neighbors.  Some tell me they attended a seminar put on by a financial advisor, trust attorney, or other organization that extolled the virtues of a trust.  I even had someone who insisted they needed a trust because their brother-in-law’s nephew had convinced them a trust was necessary for them.

While there are many situations where a living trust is helpful, there are not as many situations where a trust is necessary.  Living trusts are incredibly useful and versatile tools, but not everyone may want a trust, or even need one.  A trust may be necessary in certain cases.  You need a trust to protect assets from the government if someone has a disabled child, or is trying to pay for long term care as they age.  A special needs trust for a disabled child or an asset protection trust are different from revocable living trust.  A living trust does not protect assets from long term care costs or protect assets for a special needs child – there are specific trusts for those situations, which are not discussed in this blog post.

A living trust does give several advantages and is quite helpful in many situations. The first, and most often used reason to have a trust is to avoid the probate process needed for a will.  A living trust can avoid probate.  A living trust can also help with passing assets on to your loved ones with greater ease of transfer.  And a living trust can allow you to control assets after you die.  Not everyone needs to control assets after they die, and not everyone needs to avoid probate, but for those who do, a living trust is an excellent tool.

 

A Living Trust Can Avoid Probate

When you set up a living trust, you transfer assets into the name of the trust through a process called “funding” the trust.  Basically, you change titles and ownership on your house and financial investments to be your trust, instead of you personally.  That way, your assets are owned by a trust that does not die when you do.  Rather, the trust continues to exist and you can name a person to take over the trust when you die, and that person is known as a successor trustee.  Because the trust continues to exist, while someone else just takes over managing the trust and carrying out the instructions in the trust, there is no need to go through the probate process under normal conditions.  There are always exceptions to this rule, like if your successor trustee fails to pay off your debts, a creditor can force probate to open to get paid, but those are rare instances.  Just have your trust pay off your debts, and this problem disappears!

If you absolutely cannot avoid it, probate in Colorado is really not that bad of a process.  If you have a good will, then the process is fairly administrative (as opposed to formal legal proceedings), and the will guides the process, so whomever you name as beneficiaries in your will get your assets.  However, many people own assets in different states, like a vacation home or a  family farm, or a cabin.  For those who own property – especially real estate – in different states, setting up a living trust that holds property in different states means that the beneficiaries don’t need to go through the probate process in multiple states.  Instead, the trust allows you to avoid probate in all the different states, instead of needing to go through probate in all the states where you own property.  If this is your situation, a trust is certainly a good way to go!

I also have clients who completely distrust the government and don’t want the government to be involved in knowing who will receive property.  A trust is a private document and is not public record, or shared with the government, so a trust can keep the government out of transferring property at the time of your death.  A trust also keeps your asset distribution private, so other people cannot read your trust.  A will becomes a public document when it is probated, so anyone can read your will after you die, so long as they properly request a copy.  For those who seek better privacy and to keep the government at bay, a trust is also a good way to go.

 

A Living Trust Can Ease the Asset Transfer Process

Transferring assets out of the name of a deceased person and into the name of the beneficiaries or heirs can be a somewhat difficult and time consuming process.  Understandably, banks and other financial institutions don’t want to give assets to someone who is not the owner of the assets, or who is not the correctly designated representative of a person.  As such, there are processes (often time consuming or cumbersome processes) to claim assets from a bank or other financial institution, and those processes often require paperwork from the probate court to show your personal representative is properly authorized to claim your assets.

If you have a trust, your successor trustee can take over the trust and inform banks and other financial institutions that you have passed on and the successor trustee is now able to access assets.  The successor trustee will still need to show that you have passed away, but the process can be much quicker, smoother, and streamlined for transferring assets to the named beneficiaries of the trust in the manner dictated by the trust.

I think of using a living trust as a tool to set things up right now to make things easier in the future.  If you set up a living trust now, and transfer your assets into the trust while you are alive, you are making things easier on your personal representative and beneficiaries in the future.   You have already done a lot of the necessary work now, so that work doesn’t need to be done down the road after you are gone.  If you want to make life easier on people after you are gone, then a living trust can be quite helpful.

 

A Living Trust Helps You Control Property After You Die

Not everyone wants to control property, or needs to control property after they die, but many do.  I have three minor children, so if I die before they are adults, I want to ensure they are cared for and not overwhelmed by getting too much money at a young age.  I have established parameters in my living trust to give the money to my children as they reach adulthood and are more able to understand what to do with money they inherit.  I am not trying to control my children, but I am controlling when they would inherit money to set them up for success in life.  I could have set up a will and instructed the personal representatives to establish a trust for my minor children through the probate process, but I wanted to make things easier on everyone, so I established a trust now to make life simpler on those carrying out my instructions after I pass away.  I am controlling assets after I die, but doing so to take care of my children and make life easier on my family members carrying out my instructions.

For those who have minor children, or children who have a physical or mental disability or an addiction to some sort of substance, controlling assets after you pass away is a great idea.  You are serving your children by controlling the assets, not being an unkind individual to people by controlling the assets.  You can also specify that certain assets are to be used for education or other worthy causes, so that you are ensuring the continued success and happiness of your beneficiaries after you are gone.  If this is something you want to do, then a trust can be useful and helpful for you, too.

 

A Living Trust Can Be Helpful to You.. as a Colorado Resident

If any of the above described situations applies to you, then a living trust may be the right tool for you.  Trusts do have legal fees associated with them, and those fees may be higher than simply doing a will.  The cost of trust needs to be considered along with the value of setting up a trust.  I cannot say for certain that everyone will find a trust worthwhile, but if the above-mentioned situations apply to you, then a trust may well be the right choice for you!  You should definitely consult with an experienced estate planning attorney to see if a trust is right for you.  If you think you may want to set up a trust, you can make an appointment to discuss a trust with an experienced estate planning attorney by clicking the link below.