What is a Trust and do I Need One?
A trust is a legal arrangement that involves three parties:
- Grantor/Settler: The person who sets up the trust.
- Trustee: The person who has control over the trust.
- Beneficiary: The person (or persons) who are designated to receive the assets within a trust when specified conditions are met.
When a trust is created, assets are placed into it and a trustee is named. The trustee is responsible to manage the assets within the trust and distribute them to beneficiaries at the appropriate time.
Types of Trusts
There are several different types of trusts that can be used for specific purposes. For example, there are charitable trusts that can allow the grantor to direct assets to their favorite charities when they pass on. There are also special needs trusts that allow a disabled person to continue receiving the government benefits necessary to treat and manage their condition. The most common type of trust is known as a revocable living trust.
Revocable living trusts are set up during the lifetime of the grantor. The grantor must be 18 years of age or older and of sound mind. Anyone can be named as the trustee, and it is common for grantors to name themselves as trustees while they are alive, with a successor trustee designated to take over when they die. As the name implies, a revocable living trust can be altered or revoked during the lifetime of the grantor.
While the grantor is alive, assets can be added or removed from the trust as circumstances warrant. The grantor can control the assets within the trust as they normally would. For example, they can continue living in their home and spending the liquid assets however they see fit. Upon death, the trust controls how and when the assets from the trust are distributed to beneficiaries.
Advantages of a Revocable Living Trust
Setting up a revocable living trust can provide several unique estate planning advantages. Some of the most important include:
- Avoiding the Probate Process: One of the primary reasons why individuals choose to set up a revocable living trust is to spare their loved ones the stress, expense, and delay of going through probate proceedings after they die. Probate can be a long, arduous, and frustrating process. In some cases, the probate process can take several months. And if someone decides to contest a will, the process can drag on even longer. Assets within a trust are distributed (based on the predetermined conditions of the trust) without the need for probate.
- Privacy: A probate proceeding becomes part of the public court record. This means that anyone who searches the court records can find out how the assets within the estate were dispersed. Trusts, on the other hand, keep all of this information private. The assets within a trust and its beneficiaries are never revealed to the general public.
- Flexibility on Asset Distribution: With a will, assets are distributed to beneficiaries once the probate process is completed. This may be okay in some cases, but what if there are beneficiaries whom you want to leave assets and property to, but you are concerned about their age, maturity, and ability to use these assets responsibly? A trust helps you solve this problem by allowing you to set specific dates and/or other conditions for the disbursement of your assets upon death.
It should be noted that a revocable living trust does not exempt your assets from the federal estate tax. However, this is not likely to be an issue for most people. The Tax Cuts and Jobs Act of 2017 doubled the estate tax exemption to $11.2 million for individuals, and $22.4 million for married couples. In addition, surviving spouses, blood, adopted, and/or step children and grandchildren, and siblings are exempted from the Kentucky inheritance tax.
If your assets are well in excess of the exemption amount for the federal estate tax, you may want to consider an irrevocable trust. These trusts are more complex and have certain restrictions, so be sure to discuss this option with an experienced estate planning attorney if you fall into this category.
Do I need a Trust?
Revocable living trusts are not for everyone. Setting up this type of trust can be complicated, and it will cost more than standard estate planning documents such as a Last Will and Testament. For some individuals, there may be simpler ways to pass on their assets without probate.
For example, probate is not required in Kentucky when property is jointly owned with a right or survivorship. The state also allows Payable-on-Death designations for bank accounts and certificates of deposit, and Transfer-on-Death registrations for stocks and bonds. Finally, if your estate has $15,000 or less worth of property, you may qualify for simplified “small estate” probate procedures.
Important Note: Kentucky does NOT allow Transfer-on-Death deeds for real estate property and vehicles. Real estate property and vehicles that are not jointly-owed must go through probate if you have not made an alternate arrangement such as creating a revocable living trust.
Speak with a Skilled Kentucky Estate Planning Lawyer
In many cases, setting up trust can be an effective estate planning strategy. However, trusts are complicated instruments that must be worded precisely and properly to ensure that they are legal and accomplish your desired purposes. If you are considering a trust, the first step is to contact a qualified attorney.
At the law offices of John H. Ruby &Associates, we have in-depth experience helping clients with even the mostcomplex estate planning needs. We understand that no two situations are exactlyalike, and we take the time to listen and understand your needs, so we candevelop a plan that fully addresses your needs and accomplishes your goals. Fora personalized consultation with one of our attorneys, call our experienced Kentucky trust attorneys today at502-895-2626. You may also send us a message through our online contact form orstop by our Louisville office at your convenience.