Questions and Answers for Wills / Trusts
What is a Last Will and Testament?
Does a will cover everything I own?
What happens if I die without a Last Will?
Are there various kinds of Wills?
What if my assets pass to a trust after my death?
Can I change or revoke my Last Will?
How are the provisions of a will carried out?
Who should know about my Last Will?
Will my beneficiaries have to pay estate taxes?
What are the advantages and disadvantages of a Last Will?
What is a Revocable Living Trust (living trust) ?
What is contained within the living trust declaration?
What is a trustee and what does a trustee do?
Why is a living trust so important?
What is my position with respect to my living trust while I am alive?
Should I have a living trust?
Can a living trust help me if I become incapacitated?
How does a living trust help me after my death?
What is probate?
How does a living trust avoid probate?
How does a living trust help my children?
Who should I nominate as trustee of my living trust?
How are my assets transferred into the living trust?
Are there any disadvantages of a living trust?
If I have a living trust, do I still need a will?
Will I have to file an income tax return for my living trust?
What other estate planning documents should I have with my living trust?
Estate Planning Questions / Answers
What is a Last Will and Testament?
There is an old adage: “Everyone should have a Will”. This statement is true for some people and not true for others. Whether you should have a will or not depends on so many factors. A Last Will is essentially a legal document in which you give certain instructions to be carried out after your death. For example, you may direct the distribution of your assets (your money and property), and give your choice of guardians for your children. It becomes irrevocable when you die. In your will, you can name (a) your beneficiaries (family members, friends, spouse, domestic partner or charitable organizations, for example) to receive your assets according to the instructions in your will. You may list specific gifts, such as jewelry or a certain sum of money, to certain beneficiaries, and you should direct what should be done with all remaining assets (any assets that your will does not dispose of by specific gift); (b) a guardian for your minor children. You may nominate a person to be responsible for your child's personal care if you and your spouse die before the child turns 18. You may also name a guardian-who may or may not be the same person-to be responsible for managing any assets given to the child, until he or she is 18 years old; (c) a person or institution (an executor) to collect and manage your assets, pay any debts, expenses and taxes that might be due, and then, with the court's approval, distribute your assets to your beneficiaries according to the instructions in your will. Your executor serves a very important role and has significant responsibilities. It can be a time-consuming job. An executor should be chosen wisely with guidance by your attorney. Keep in mind that a will is just part of the estate planning process. Whether your estate is large or small, you probably need an estate plan.
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Does a will cover everything I own?
No. Generally speaking, your will affects only those assets that are titled in your name at your death. Those assets that are not affected by your will include: (a) Life insurance. The cash proceeds from an insurance policy on your life are paid to whomever you have designated as beneficiary of the policy in a form filed with the insurance company-no matter who the beneficiaries under your will may be; (b) Retirement plans. Assets held in retirement plans, such as a 401(k) or an IRA, are transferred to whomever you have named as beneficiary in the plan documents-no matter who the beneficiaries under your will may be; (c) Assets owned as a joint tenant with right of survivorship. Assets such as real estate, automobiles, bank accounts and stock accounts that are held in joint tenancy with right of survivorship will pass to the surviving joint tenant upon your death, and not in accordance with any directions in your will; (d) “Transfer on death” or “pay on death.” Certain securities and brokerage accounts include a designation of one or more beneficiaries to receive the assets in that account when the account owner dies. The names of the beneficiaries are preceded by the words “transfer on death” or “TOD.” Other assets, such as bank accounts and U.S. savings bonds, may be held in a similar form using the owner’s name and the beneficiaries’ names preceded by the words “paid on death” or “POD”; (e) “Community property with right of survivorship.” Married couples or registered domestic partners may hold title to their community property assets in their names as “community property with right of survivorship.” Then, when the first spouse or domestic partner dies, the assets pass directly to the surviving spouse or partner without being affected by the will; (f) Living trusts. Generally, assets held in a revocable living trust are distributed according to the instructions in the trust regardless of the instructions in your will-with no need for court supervision. You can name yourself as the initial trustee of your living trust (most people do), and then name a successor trustee to manage the trust if you become unable to do so. With a living trust, your assets are managed for your benefit during your lifetime and then transferred to your beneficiaries when you die without court supervision; (g) Your spouse's or domestic partner's half of community property. In California, any assets acquired by you and your spouse or registered domestic partner from earnings during your marriage or registered domestic partnership are community property. You and your spouse or registered domestic partner own equal shares of those assets. Your will, therefore, affects only your half of the community property. Assets that either of you owned before your marriage or registered domestic partnership, and gifts or inheritances acquired later, are usually separate property. Your will affects all of your separate property assets.
Even if your entire estate consists of assets held in joint tenancy, a life insurance policy and a retirement plan, there are still good reasons for making a will. For example, if the other joint tenant dies before you do, then the property held in joint tenancy will be in your name alone and subject to your will. If named beneficiaries die before you do, the assets subject to a beneficiary designation may be payable to your estate. If you receive an unexpected bonus, prize, refund or inheritance, it would be subject to your will. And if you have minor children, nominating a guardian for them in your will is very important.
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What happens if I die without a Last Will?
If you die without a will (referred to as intestate), California law will determine the beneficiaries of your estate. Contrary to popular myth, if you die without a will, everything does not automatically go to the state. If you are married or have established a registered domestic partnership, your spouse or domestic partner will receive all of your community property assets. Your spouse or domestic partner also will receive part of your separate property assets, and the rest of your separate property assets will be distributed to your children or grandchildren, parents, sisters, brothers, nieces, nephews or other close relatives. If you are not married or in a registered domestic partnership, your assets will be distributed to your children or grandchildren, if you have any-or to your parents, sisters, brothers, nieces, nephews or other relatives. If your spouse or domestic partner dies before you, his or her relatives may also be entitled to some or all of your estate. Friends, a non-registered domestic partner or your favorite charities will receive nothing if you die without a will. The State of California is the beneficiary of your estate if you die intestate and you (and your deceased spouse or domestic partner) have no living relatives.
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Are there various kinds of Wills?
Yes. In California, you can make a will in one of three ways: (a) a handwritten or holographic will. This will must be completely in your own handwriting. You must date and sign the will. Your handwriting has to be legible, and the will must clearly state what you are leaving and to whom. A handwritten will does not have to be notarized or witnessed. However, any typed material in a handwritten will may invalidate the will. A typed will must be signed by two witnesses. It is a good idea to consult with a qualified lawyer to make sure your will conforms with California law and does not have any unintended consequences; (b) a will prepared by a lawyer. A qualified estate planning lawyer can make sure that your will conforms with California law. The lawyer can make suggestions and help you understand the many ways that assets can be transferred to or for the benefit of your beneficiaries. A lawyer can also help you develop a complete estate plan and offer alternative plans that may save taxes. This kind of planning can be extremely helpful and economical in the long run. Your lawyer will either personally supervise the signing of your will or will give you detailed instructions on the rules for its execution by you and two witnesses (who are not beneficiaries of your estate). No matter what kind of will you use, the will should be solely yours and not a joint will with your spouse, registered domestic partner or anyone else. Also, keep in mind that your will is not a living will. The term living will is used in many states to describe a legal document that states you do not want life-sustaining treatment if you become terminally ill or permanently unconscious. In California, advance health care directives and durable powers of attorney for health care decisions are used for that same purpose.
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What if my assets pass to a trust after my death?
You may make a provision in your will for your assets to be distributed to a trust upon your death. When trusts are created under a will, they are known as testamentary trusts. With an appropriate beneficiary designation, testamentary trusts can even be beneficiaries of life insurance policies and retirement plans. If you have a living trust, (that is, a trust established during your lifetime) then your will is often referred to as a pour over will. Such a will includes instructions to transfer all remaining assets (assets that were not transferred to your living trust during your lifetime) to the living trust at the time of your death. For relatively small gifts to beneficiaries who are minors, you might also consider providing for transfers from your estate to a custodian under the California Uniform Transfers to Minors Act.
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Can I change or revoke my Last Will?
Yes. You should review your will periodically. If it is not up to date when you die, your estate may not be distributed as you wish. Your will can be changed through a codicil, a legal document that must be drafted and executed with the same procedure that applies to wills. A codicil is an amendment to your will. You must not change your will by simply crossing out words or sentences, or by making any notes or written corrections on it. You may also establish a new will and, in doing so, revoke your old will. If you get married or divorced, or establish a registered domestic partnership or terminate one, you should seek the advice of a lawyer and make a new will. You should also review your will when there are any other major changes in your family (such as births and deaths), when the value of your assets significantly increases or decreases, and when it is no longer appropriate for your proposed guardian or executor or testamentary trustee to act in that capacity. If you have moved to California from another state and have a will that is valid under the laws of that state, California will honor its validity. It is important for you to review your will with a qualified California lawyer, however, since California law will govern the probate of your will if you live here at your death. And if you move out of state, your California will should be reviewed by a lawyer there.
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How are the provisions of a will carried out?
They are carried out through a court-supervised process called probate. Typically, the executor named in your will starts the probate process after your death by filing a petition in court and seeking official appointment as executor. The executor then takes charge of your assets, pays your debts and, after receiving court approval, distributes the rest of your estate to your beneficiaries. Simpler procedures are available for transferring assets to a spouse or registered domestic partner, or for handling estates with assets under $100,000. The probate process has advantages and disadvantages. The probate court is accustomed to resolving disputes about the distribution of assets fairly quickly through a process with defined rules. In addition, the probate court reviews the executor's handling of each estate, which can help protect the beneficiaries' interests. One disadvantage, however, is that probates are public. Your estate plan and the value of your assets will become a public record. Also, because lawyer's fees and executor's commissions are based on a statutory fee schedule, a probate may cost more than the management and distribution of a comparable estate under a living trust. Time can be a factor as well. A probate proceeding generally takes longer than the administration of a living trust. Discuss such advantages and disadvantages with an estate planning lawyer before making any decisions.
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Who should know about my Last Will?
No one other than you and the lawyer who wrote the will needs to know the contents of your will. But your executor and other close friends or relatives should know where to find it. Your original will should be kept in a safe place such as your safe deposit box, your lawyer's safe, or a locked, fireproof box at your residence or office.
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Will my beneficiaries have to pay estate taxes?
Assets that are transferred to either your spouse (if he or she is a U.S. citizen) or to charitable organizations are not subject to estate taxes. Assets passing to other individuals or entities will be taxed if the net value of those assets is more than $2 million. That amount will increase to $3.5 million in 2009. Then, in 2010, the estate tax will disappear completely. In 2011, however, unless Congress changes the law, the exemption will revert back to $1 million. For estates that approach or exceed this value, significant estate taxes can be saved by proper estate planning. Usually, that planning must be done before your death and, for couples, before one of you dies. While estate planning generally focuses on estate taxes, planning must also take into consideration income, capital gains, gift, property and generation-skipping taxes as well. You should obtain qualified legal advice about taxes and current tax law during the estate planning process.
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What are the advantages and disadvantages of a Last Will?
There are many advantages to a Last Will. A Last Will is best suited for people who have simple and small estates. If your estate is simple or small, a Last Will can designate your beneficiaries, executors and guardians. A will is simpler and less expensive than living trust to set up. A will an be created on a person’s deathbed unlike a living trust. With a will, no notary public is required. You can also establish ‘intentional omission’ and ‘no Contest’ clauses in your last will. A will additionally lasts a lifetime, and no witnesses are needed for holographic (handwritten) wills. If someone dies with a Last Will when the decedent should have had a living trust, there are usually more disadvantages than advantages. For one, if the person’s estate is probated, the estate will be easy to contest in the probate court. Additionally, distribution would be long and time consuming. There is limited privacy in probate. And, probate is more costly in long run with the attorney, executor, and court fees and costs involved in the probate proceedings.
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What is a Revocable Living Trust (living trust) ?
A Revocable Living Trust is a written legal document that provides more for you than just a basic will. It only partially substitutes for a will. With a living trust, your assets (your home, bank accounts and stocks, for example) are put into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries when you die. With a trust, unlike a basic will, your distribution can be made pursuant to conditions outlined by you in your trust declaration. Most people name themselves as the trustee in charge of managing their trust's assets. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime. You can also name a successor trustee (a person or an institution) who will manage the trust's assets if you ever become unable or unwilling to do so yourself. A Revocable Living Trust is sometimes referred to as a revocable inter vivos trust or a grantor trust. Such a trust may be amended or revoked at any time by the person or persons who created it, who are commonly known as the trustor(s), grantor(s) or settlor(s), as long as he, she, or they are still competent.
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What is contained within the living trust declaration?
A Revocable Living Trust is a more complex document than just a basic will. Although most trusts contain standard boilerplate-type language that is required for proper administration and distribution, a carefully drafted trust will contain personalized and customized language that fits your distribution desires and needs. Your living trust details who your beneficiaries and trustees are. The trust further should detail exactly how you want your assets, from homes to watches, distributed and who will receive those items. Besides this, the trust lays out which assets you have and which are funded into your trust. Your trust also provides certain tax provisions which in some cases can provide a tax shelter for your surviving spouse and children. You also will have provisions in your trust which will outline what powers and authorities that your trustee will have.
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What is a trustee and what does a trustee do?
The trustee is a person who you personally choose to manage and distribute your trust assets. The trustee can also be a corporation. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries. Your living trust agreement gives the trustee the legal right to manage and control the assets held in your trust. The trust instructs the trustee to manage the trust’s assets for your benefit during your lifetime. The trust gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets. The person you choose to be the trustee should first and foremost be someone you ‘trust,’ not necessarily someone you have known for a long time or who is a blood relative. The choice for trustee is a careful one because that person will be in control of your assets after your death. Your attorney can help guide you in making the right decision in choosing a trustee.
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Why is a living trust so important?
A living trust may be one of the most important legal documents that you create during your lifetime. A living trust firstly is important because, so to speak, the trust is you. It is a mirror-image of what you want, what you want your beneficiaries to receive; it is your legacy, an extension of your love for those you care about and who have survived your death. A living trust is important because it can help ensure that your assets will be managed according to your wishes even if you become unable to manage them yourself. Besides these, the living trust helps avoid probate and in some cases provides asset protection and protection from disgruntled heirs. Additionally, depending on the size of your assets (your estate), a tax shelter living trust will provide avoidance of death taxes for married couples.
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What is my position with respect to my living trust while I am alive?
Your position is the most important. As stated, you are your trust. You are the ‘trustor’, the ‘settlor’, the ‘grantor’, and the ‘creator’ of your own trust. As a trustor, settlor, grantor and creator, you completely control your revocable trust while you are alive. This revocable trust only becomes irrevocable upon your death, and for good reason. You usually do not want someone changing your trust terms after your death, unless you provide that authority in your trust declaration. As the trust’s creator, you have the power to revoke, alter, amend, change, delete and destroy your trust prior to your death or incapacitation. Otherwise, your trust will last until all of your assets are distributed because that is what a trust is designed to do. You may also choose someone else to serve as trustee if you become incapacitated or are otherwise not able to serve as trustee. At your death, the trustee similar to the executor of a will would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a will, however, this can all be done without court supervision or approval.
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Should I have a living trust?
It depends on what assets you own and how you want those assets distributed. A living trust is not for everyone. If you are a couple or a single person with minimal assets and no children, then most likely you only need a basic will. Other persons who do not have significant assets and have very simple estate plans also do not need a living trust. Also, anyone who wants court supervision over the administration of his or her estate should not have a living trust since a properly funded trust avoids probate. The greater the value of your assets (particularly if you own real estate), the greater the need for a living trust. If you have children and you intend to have those assets distributed to your children, a living trust would best fit your needs due to the conditions you would have structured within your trust and the guardianship provisions inserted within your ‘pour-over will’. You cannot have jointly-owned property transferred into your trust without terminating the joint tenancy of that property. Unilaterally transferring your joint tenancy interest into a trust without the knowledge or consent of the other joint tenant may result in legal problems with the joint tenant. It is always in your best interests to discuss this question with an experienced estate planning attorney because having a living trust could be the most important legal document you ever created.
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Can a living trust help me if I become incapacitated?
Yes. If you are the trustee of your own living trust and you become incapacitated, your chosen successor trustee would manage the trust’s assets for you. If your assets were not in a living trust, however, someone else would have to manage them. How this would be accomplished might depend on whether your assets were separate or community property. If you are married or in a registered domestic partnership, assets acquired by either you or your spouse or domestic partner while married or in the partnership and while a resident of California are community property. In domestic partnerships, earned income is not treated as community property for income tax purposes. On the other hand, any property that you owned before your marriage or registration of your partnership, or that you received as a gift or inheritance during the marriage or partnership, would probably be your separate property. In California, community property could be managed by your spouse or registered domestic partner if he or she is competent. If you own separate property (or are not married or in a registered domestic partnership) and you become incapacitated, such assets could be managed by an agent or attorney-in-fact under a power of attorney; without planning, however, your separate property assets would be subject to a probate court proceeding called a conservatorship. During the conservatorship process, a judge could determine that you were unable to manage your own finances or to resist fraud or undue influence. The court would then appoint someone (a conservator) to manage your assets for you. And the conservator would report back to the court on a regular basis. Your conservator might be someone whom you previously nominated. Or, if no one had been nominated, it might be your spouse, registered domestic partner or another family member. If none of those persons are available, then it might be the public guardian. Conservatorship proceedings are designed to help protect you at a time when you are vulnerable or incapable of managing your assets. However, they are also public in nature and can be costly because of the substantial court intervention. In addition, conservatorship proceedings may be less flexible in managing real estate or other interests than a well-managed living trust.
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How does a living trust help me after my death?
The most widely sought out advantage of the living trust is its unique ability to avoid probate court proceedings. Many say that a probate proceeding is a total disadvantage. It is a disadvantage if it is not needed. Most people do not need probate because their assets can be easily transferred and distributed within the terms of the trust. A properly funded trust avoids probate proceedings. A trust is only as good as it is funded. When not funded, the trust acts like a basic will. When your assets are funded into your trust, those assets could be managed by the trustee and distributed according to your directions without court supervision and involvement. This can save your heirs time and money. And because the trust would not be under the direct management of the probate court, your assets and their value (as well as your beneficiaries’ identities) would not become a public record. Your heirs and beneficiaries would still have to be notified about the living trust and advised, among other things, of their right to obtain a copy of the trust. Certain assets you own are sometimes not transferred into your trust such as joint tenancy-type assets, some insurance policies, and some retirement accounts, although it is sometimes a good ideal to have all of your assets transferred into the trust. Because there is no probate with a living trust, there is not the risk that someone will litigate the estate in probate. It costs someone time and money to hire a private counsel to oppose a trust, and the absence of probate greatly reduces that probate litigation potential. Additionally, a living trust can contain a ‘No Contest’ clause and an ‘Intentional Omission’ clause (as with a basic will too) where one is designed to prevent fighting amongst beneficiaries, and the latter is designed to prevent uninterested (or disliked) individuals from receiving any of the trust assets.
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What is probate?
Generally speaking, probate is a court proceeding where the probate court (through their judicial officers, probate attorneys, examiners, or investigators) supervises the administration of the decedent’s last will by the appointed executor. If you die without a properly funded trust, or with a will, and your ‘estate’ needs to be managed and administered, a petition would be filed with the court (usually by the person or institution named in your will as the executor). After notice is given, a hearing would be held. Then your will would be admitted to probate and an executor would be officially appointed. An inventory of your assets would be filed with the court and notice would be given to your creditors so they could file claims. The process would end once the court approved a final distribution of assets. Probate usually takes vastly more time to complete than the distribution of property held in a living trust by a well-organized and efficient successor trustee. In addition, assets tied up in probate may not be as readily accessible to the beneficiaries as those held in a living trust. And the cost of a probate is often greater than the cost of managing and distributing comparable assets held in a living trust. In sum, probate usually ends up being a bigger disadvantage to a decedent’s estate than if those assets were funded into a trust and administered according to the trust’s assets.
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How does a living trust avoid probate?
A living trust helps your assets avoid probate because the assets you own are transferred into a trust before your death, and therefore there would be no need to have those assets probated by the probate court. If you die with assets still in your name and no one else’s name, you will need probate to allow your executor to transfer those assets out of your name for purposes of distribution. For example, if you die with your house solely in your name, and your last will distributes your house to your only child, your child will be unable to sell or refinance your house without probate. Probate will provide your child with a court order allowing him or her to transfer the house to the child’s name through the county recorder’s office, but it takes several months usually to get to that point for your child. Alternatively, if your house is transferred into your trust prior to your death, your child could easily then have your house transferred into his or her name without probate by just recording certain documents with the recorder.
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How does a living trust help my children?
A living trust is a great advantage for your children whether they are minors or not. Your choice of creating a trust is usually one motivated to either protect your children’s future inheritance and/or to protect your assets in some other way. Having a living trust is one way to show your love for your children because you are wanting the distribution of your assets to them to be less costly and without government or litigation interference. As with a basic will, a living trust will contain ‘guardianship’ provisions where you designate and nominate a trusted close family individual or couple to be the guardian(s) for your minor children. This person could be both the guardian for your child’s ‘estate’ and ‘person.’ Although the trust nominates this individual (and successor individuals), you still would need the probate court to ‘appoint’ this individual because the court needs to ultimately investigate whether this individual would serve in the best interest of your minor children. Besides this, the trust allows you to create conditions for distribution such as education conditions. For example, you could set up an arrangement that distribution will be conditioned upon the child attaining a college degree or certification, or the distribution could be conditioned upon the minor reaching certain ages (such as 21, 25, and 30). Trusts are also designed to provide for a minor’s medical needs, health needs, and educational needs.
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Who should I nominate as trustee of my living trust?
The choice of trustee is very personal and should be made with much deliberation. Most people serve as trustees of their own living trusts until they become incompetent or die. Others decide they need assistance simply because they are too busy or too inexperienced or do not want to manage their day-to-day financial affairs. Choosing the right trustee to act on your behalf is very important. Your trustee will have considerable authority and responsibility and will not be under direct court supervision. You might choose a spouse, adult child, domestic partner, other relative, family friend, business associate, or professional fiduciary to be your trustee. The professional fiduciary could be a licensed, registered individual, or a bank or trust company licensed by the State of California. You may also name co-trustees. Discuss your choice with an experienced estate planning lawyer. There are many issues to consider. For example, would the appointment of one of your grown children cause a problem with his or her siblings? What conflicts of interest would be created if you name a spouse, child, business associate, or partner as your trustee? And will the person named as your successor trustee have the time, organizational ability and experience to do the job effectively? It is usually better to nominate a trusted person than just someone who is related to you by blood, but the decision should be a very careful one.
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How are my assets transferred into the living trust?
Once your trust has been signed, the all important task remains to have your assets transferred into the trust. To avoid court-supervised conservatorship proceedings if you should become incapacitated, or the probate process at your death, your assets must be transferred to the trustee of your living trust. This is known as funding the trust. Deeds to your real estate must be properly prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork. A living trust can hold both separate and community property. This makes it convenient for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document. While registered domestic partners have many of the same rights as spouses, be aware that federal tax law does not provide the same tax benefits for domestic partners as it does for spouses. If you own real estate in another state, you might (depending on that state's law) transfer that asset to your trust as well to avoid probate in that other state. If the real estate is located in California, a California lawyer should prepare the deed and advise you on transferring such property. A lawyer can help you transfer other assets as well. For example, you should consider changing the beneficiary designations on life insurance to the trust. As for the beneficiary designations on a qualified plan (such as a 401(k) or an IRA), you should seek a qualified professional's advice because there are serious income tax issues.
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Are there any disadvantages of a living trust?
There are not a lot of disadvantages to a living trust. In fact, in most cases there are more disadvantages to having a last will than having a living trust. Because living trusts are not under direct court supervision, a trustee who does not act in your best interests may, in some cases, be able to take advantage of you. In a probate, direct court supervision of an executor reduces this risk. In addition, the cost of preparing a living trust could, in some cases, be slightly higher than the cost of preparing a will. However, it depends on the particular estate plan. The difference in cost may not be significant if the estate plan is complex. Also, keep in mind that a living trust can create additional paperwork in some cases. For example, lenders may not be willing to lend to a trust and may require that real property be taken out of the trust (by a deed) before they will agree to a loan on that real property. This is not a big disadvantage and is usually taken care of quickly by simply transferring the real property back into the trust by your attorney after the refinance.
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If I have a living trust, do I still need a will?
Yes. Your will affects any assets that are titled in your name at your death and are not in your living trust or some other form of ownership with a right of survivorship. If you have a living trust, your will would typically contain a ‘pour over’ provision. Such a will is called a ‘Pour-Over’ Will. Such a provision simply states that all such assets should be transferred to the trustee of your living trust after your death.
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Will I have to file an income tax return for my living trust?
No, not during your lifetime. The taxpayer identification number for accounts held in the trust is your Social Security number, and all income and deductions related to the trust's assets are reportable on your individual income tax returns. After your death, the income taxation of the living trust is similar to a probate. Additionally, the I.R.S. cannot does legally require you to produce your trust declaration during your life in any audit.
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What other estate planning documents should I have with my living trust?
A durable power of attorney for property management could be helpful if you ever become incapacitated. It deals with assets that were not transferred to your living trust before you became incapacitated and any assets that you receive afterward. With this power of attorney, you appoint another individual (the attorney-in-fact) to make financial decisions on your behalf.
This power of attorney, however, cannot replace a living trust because, among other things, it expires when you die. It cannot provide instructions for the distribution of your assets after your death. You might also consider setting up an advance health care directive / durable power of attorney for health care. This allows your attorney-in-fact to make health care decisions for you when you can no longer make them for yourself. In your advance health care directive, you may state your wishes regarding life-sustaining treatment, organ donation and funeral arrangements as well. A health care directive also allows an authorized agent to access your medical information, which could be important in light of strengthened federal privacy laws.
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