PDF ALL YOU NEED TO KNOW ABOUT LIVING TRUSTS AND PROBATE By ...

ALL YOU NEED TO KNOW ABOUT LIVING TRUSTS AND PROBATE By Attorney Paul T. Czepiga, JD, CPA A.Whatisalivingtrust? Alivingtrustisawrittendocumentthatyoucreatewithyourlawyerduringyour lifetime.Youmaychoosetofunditduringyourlifetime,orleaveitunfundeduntil yourdeath.By"fundit,"Imeanthatyouactuallymakeitthelegalownerofyour assets,someorallofthem;itisuptoyoutodecide.Forexample,youmightchoose toretitleyourbankaccounts,brokerageaccounts,orevenyourhouseintothename ofyourtrust.Ifyoudoso,youwillnolongerbetheownerofthoseassets--the Trusteeofyourtrustwillbetheowner. Yourtrustwillcontainprovisionsformanagementofthetransferredassetsduring yourlifetimeandwillinclude,aswell,whathappenstothoseassetsuponyour death.Inthelatterregard,itfunctionsasaWillsubstitute.Thetrusteewill administerthetrustinaccordancewithitsterms.Mostoftenyou,thecreatorofthe trust,willbethetrustee,althoughsometimesthecreatorwillnameaspouse,child, friendorbankasaCo-Trustee.IfyouaretheonlyTrustee,thenyouwillnamea spouse,child,friendorbankasyoursuccessortrusteetoserveuponyourdeathor disability. B.Isalivingtrustrevocable? Yes,alivingtrustisrevocable,meaningthatyoucanenditatanytime.You,asthe creatorofthetrust(the"Grantor"),reservetherighttoamendit,revokeit,change thetrustee,andgenerallyalterthetrusthoweveryouplease.Becauseyouretain suchrights,youaretreatedbytheInternalRevenueServiceasifyoustillownedthe propertyinthetrust.Therefore,youwillreportonyourpersonalIncomeTax Return,Form1040,anyincomegeneratedbythetransferredassets.And,solongas youareaTrusteeorCo-Trusteeofyourtrust,thetrustwillnothavetofilea separateincometaxreturn.IfyouarenottheTrusteeorco-Trustee,thetrustwill havetofileaninformationreturn,butyoustillreporttheincomeonyourForm 1040.Therevocabilityofalivingtrustbyyou,itscreator,meansthatalivingtrust, intermsofyourcontrolovertheassets,isnodifferentthanifyouownedthem outright.Alivingtrustis,inessence,yourpersonalcheckbook--youcandowiththe assetswhateveryouwish.Althoughthetrustisthelegalowner,theIRStreatsyou astheownerbecauseyoureallyhavenotpartedwithcontrol--youcantakethe assetsoutofthetrustforyourpersonaluseatanytimeandforanyreason.You suffernolossofcontrolorofincome. C.CanIreducemyestatetaxliabilitywithalivingtrust? Alivingtrustisrevocableandbecauseyoucanobtainaccesstoalloftheassetsat anytimeforanyreason,then,uponyourdeath,anyassetsinthetrustwillalsobe includedinyourgrossestatefordeathtaxpurposes.Thisisanimportantpoint--a

livingtrustdoesnotofitselfsaveanydeathtaxes.Whateverdeathtaxsavingscan beachievedinaWillcanalsobeachievedinalivingtrust.Onedoesnothaveadeath taxadvantageovertheother.Forthisreasonaswell,thereisnominimumnet worthorwealththatisnecessarytoconsideralivingtrust. D.Whatarethebenefitsofalivingtrust? 1.Avoidingprobate First,thoseassetsthatyouhavetransferredtothetrustpriortoyourdeathwill avoidprobate.AprimarypurposeofaProbateCourtwhensomeonediesisto facilitatethetransferoftitlefromthepersonwhodiedtothebeneficiaries.The ProbateCourthasjurisdictiononlyoveranestatetotheextentthatapersonowned assetsinhisorhersolenameatthetimeofdeath.Inthecaseofafundedliving trust,thetrust,whichisthelegalowneroftheassets,didnotdieandtheProbate Courtdoesnotgetinvolved.Uponthegrantor'sdeath,thetrusteeofthetrustwilldo withtheassetswhateverthetrustsays.Thetrustmaysay,forexample,thatuponits grantor'sdeath,thattheTrustwillendandtheassetswillbedistributedbythe Trusteetothebeneficiaries,ortheTrustmaysaythattheTrusteewillcontinueto holdtheassets--italldependsuponwhattheGrantorstatedinthedocument.The bottomline--UpontheGrantor'sdeath,thetrustservesasaWilltotheextentthatit hasassetsinit. AvoidingProbatemeansthattheassetscanbetransferredimmediatelyafterdeath totheintendedbeneficiarieswithoutdelay.Itdoesnotmean,however,thatthe assetsavoiddeathtaxes,asdiscussedearlier,orthatyouavoidProbateCourtfees. ProbateCourtschargefeesbasedonthesizeofthetaxableestate,notonthesizeof theprobateestate(Seepage____).ProbatefeesareoneofthewaysthattheProbate Courtsarefundedtopaystaffandoperatingcosts. 2.Privacy UnlikeaWill,whichisapublicdocumentthatmustbefiledwiththeProbateCourt atdeath,alivingWillisprivateandisnotavailableforinspectionbythepublicat yourdeath.Ihavefoundthatthisprivacyelementisseldomamotivatingfactorfor usingalivingtrust. 3.Aplanningtoolforincapacity Alivingtrustwillensurethatyourassetsaremanagedforyourbenefitintheevent thatyoubecomeincapacitated.Shouldyoubecomeeitherphysicallyormentally disabled,then,ifyourassetsareinalivingtrust,yoursuccessortrusteewill continuetomanagethetrustanditsassetsinaccordancewiththetermsthatyou established.ThereisnoneedtoseekaconservatorintheProbateCourtanda ProbateCourt,intheexerciseofitsdiscretion,cannowrefusetoappointa Conservatorifitfeelsotherarrangementsareinplace,suchaslivingtrust,forthe

incapacitatedperson. 4.Out-of-staterealestate Foroutofstaterealproperty,alivingtrustownssuchproperty,andassuch,itwill notbenecessarytogothroughthatstate'sprobateproceduresortopayalawyer fromthatstatetohandletheprobate,usuallyatconsiderablecost,forjusttheone asset. 5.Familyfriction Ifthereisasecondmarriage,orifyouhavechildrenwhodonotgetalong,thena livingtrustmaybebest(ifyourTrusteeisfaithfultoyourwishes)becauseitwillbe harderforoneoftheotherpotentialbeneficiariestocausetroublefortrouble'ssake iftheydonotknowwhatthetrustcontainsorsays--rememberthatitisaprivate document. E.HowtoreapthebenefitsofaLivingTrust Youwillrealizetheabovebenefitsonlyifyouactuallyfundyourlivingtrust.Some peoplewillhaveaterrificlivingtrustandnotfundit,eitherintentionallyorby accident.Ifitisintentional,thepersonlikelyhasa"pourover"Willsothatinthe eventthepersonownsanyassetsintheirnameatthetimeoftheirdeath,their "pour-over"Will,whichwaspreparedasapartoftheirestateplan,providesthat thoseassetsaretobeaddedtotheassetsofthepreviouslycreated,butunfunded, livingtrust,sothattheywillbedistributedaccordingtothetermsofthetrust. However,allsuchassetswillbesubjecttoprobateatdeathbeforetheyareaddedto thetrust. Becauseanyassetswhichyoumayowninyourownnameatthetimeofyourdeath willbesubjecttoprobateatyourdeath,eventhoughtheywillultimatelybeadded totheassetsheldintheLivingTrust,youshouldcarefullyandcontinuallyreview thoseassetsheldinyourownname(whethernowownedoracquiredlater)tobe surethatsuchownershipisappropriateinlightofyourdesiretoavoidprobateat death. Apersonwhohascreatedalivingtrustmaychoosenottofunditinitially.Theymay decidetowaituntilsuchtimeastheyareunabletomanagetheiraffairsandeither funditatthatpointorhavesomeoneholdingtheirPowerofAttorneyfundit.The decisiontodelayfundingcouldalsobeanoutgrowthofwantingtoavoidtheone timeadministrativestepsthathavetobetakeninordertofundit(dealingwithall thebanksthatholdyourCDs,yourbrokerageaccountorindividualstock certificates,doingnewdeedstoyourrealestateetc.). Insummary,alivingtrusthasverypracticalapplications,butthisdoesnotmean thateveryoneneedsone.Itisaveryflexibleplanningtoolandhaslifetimeandpost

deathapplications.Thedecisiontousealivingtrustcannot,however,bemadeina vacuum--itmustbeviewedinlightofyourassets,wealth,andfamilyrelationships. F.Whataboutprobateisitsoterrible? Oneofthebenefitsofaproperlydraftedandfundedlivingtrustisthatitenablesa persontoavoidprobateupontheirdeath.Whetherprobateavoidanceisa"good"or a"bad"thingishighlysubjective.Toanswerthequestion,weneedtofirstdefine exactlywhatprobateisandthentooverlaytheprocessonyourfinancialandfamily situationtodeterminewhetherprobateavoidanceisinyourbestinterests. Ingeneral,whenapersondiesthefunctionoftheprobatecourtisthefollowing:to ensurethat,iftherewasaWill,itisthedecedent'struelastWill,andnotaforgedor revokedversion;toensurethatthedecedent'sassetsaresafeguardedandprotected fromwaste,theft,orneglect;toensurethatvalidbillsanddebtsarepaid,including deathtaxes,ifany;andtomakesurethatwhatremainsispaidtotheintended beneficiariesinaccordancewiththedecedent'svalidLastWillandTestament.In summary,thepurposeistooverseethetransferoftitleofthedecedent'sassetsfrom thedecedent'snametothedecedent'sbeneficiaries,makingsurealongthewaythat alloftheassetsareaccountedforandthatallofthebillsarepaid.Themore importantstepsintheprobateprocessaredescribedchronologicallybelow: 1.ApplicationforAdministrationorProbateofWill ThisisthefirstformfiledwiththeProbateCourt,anditgivesthecourtallpertinent informationaboutbeneficiariesandfamilymembers.TheoriginalWill,ifthereis one,accompaniesthisform.Afterthecourtreceivesthisform,itwillsetahearingto accepttheWillandalsotoappointanExecutoroftheestate.TheProbateCourtwill issuecertificatestotheExecutor.ThesecertificateswillevidencetheExecutor's authoritytoactonbehalfoftheestate.Inmanysituations,theWillcanbeaccepted andtheExecutorappointedwithouttheneedforahearingorforanyonetogotothe probatecourtatall. 2.CertificateforLandRecords Ifthedecedentownedrealestate,theprobatecourtwillgivetheexecutorthisform toberecordedonthelandrecordsshowingthedecedentdiedandthat,ifthe propertywasownedjointly,thattheremainingjointownersnowowntheproperty. 3.FilingtheInventory AbouttwomonthsaftertheExecutorisappointed,theExecutormustfilean Inventoryoftheestate'sassetswiththeprobatecourt.ThisInventorywillcontain alloftheassetsheldbythedecedentinhisorhernamesolely.Thepurposeofthe InventoryistoshowwhatassetsaresubjecttotheCourt'sjurisdiction--thecourt onlydealswithassetsinthedecedent'sownname.Assetsthatarepayableby

beneficiarydesignation(lifeinsuranceandIRAs,forexample)orthatareheld jointly(suchasabankaccounttitled"husbandorwife"or"parentorchild)pass outsideoftheprobateprocessbecausethecourt'sinterventionisnotneededto transfertitle.Inthecaseofjointlytitledassets,titlepassesautomaticallyatdeathto thesurvivingnamedaccountholdersandforlifeinsurance,forexample,titlepasses whentheinsurancecompanysignsanddeliverstheproceedschecktonamed beneficiary. 4.Liabilities Next,theExecutormustdeterminewhatbillswereowedatthedecedent'sdeath. Thiswillincludeanymedicalbills,taxbills,alimony,mortgages,etc.Thesebillswill besetforthonaReturnandListofClaims,whichtheExecutorfileswiththeProbate Court.Thisformmustbefiledbytheendofthefifthmonthfollowingthe appointmentofexecutor. 5.ConnecticutSuccessionTaxReturn TheExecutorwillneedtofileaConnecticutSuccessionTaxReturnsixmonthsfrom thedateofdeath,andanytaxduemustbepaidatthistime.Thistaxreturnwill indicateallproperty,whethersolelyownedorjointlyownedbythedecedent,any pensionsortrusts,anygiftsthatmighthavebeengivenduringthelastthreeyears, funeralexpenses,burialexpenses,andanyotherbills.Althoughthistaxreturnisnot partoftheprobateprocess,itisfiledwiththeProbateCourtandtheCourtforwards ittotheStateDepartmentofRevenueServices.AProbateCourtfeeandasuccession taxwillbeassessedagainstthetaxableestatereflectedonthereturn. 6.FederalEstateTaxReturn Ninemonthsafterthedateofdeath,theExecutormayneedtofileafederalestate taxreturn,dependingonthesizeoftheestate,andanypayanyfederaltax.Thistax returnwillshow,liketheSuccessionTaxReturn,everythingintheestate,anditwill includelifeinsurance(whichisnottaxablebytheStateofConnecticut).Thisformis sentdirectlytotheIRSwhowillthenassessitsowntaxonthenettaxableestate. 7.TheFinalAccount AftertheStateandFederaltaxingauthoritieshavereviewedtheirrespectivetax returns,andconcludedthatallinheritancetaxeshavebeenpaid,theywillsendthe Executorastatementthatwillshowthatalltaxeshavebeenpaid.Uponreceiptof thestatement,theExecutorcanstarttoprepareaFinalAccountingandProposed DistributionoftheestateforProbateCourtpurposes.Thefinalaccountshowsallof theactivitythatoccurredintheProbateestate,usingasthestartingpoint,thetotal assetsshownontheInventorythatwasfiledwiththeProbateCourtatthe beginningoftheprocess.Afterfilingtheaccountingandproposeddistribution,the Courtwillholdahearingandwillaccepttheaccountingandproposeddistribution

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