Intervivos, or living trusts, are extremely useful tools to manage family funds. But it seems there are many misconceptions about living trusts and how they can benefit someone from a current investment and future orderly beneficiary asset-distribution perspective. Some of the more frequently asked questions and some basic answers to those questions about living trusts are addressed in this Insights.
- What is the difference between a living trust and a testamentary trust? A trust is an arrangement in which you transfer assets to a separate legal entity (the trust), created by a legal document that is administered by a fiduciary (the trustee), and for a specific purpose and beneficiary (yourself or another person). A living trust is simply any trust you create during your lifetime. A testamentary trust is a trust created by a will. A revocable living trust is a trust that allows you complete control since you can revoke the trust or amend the terms of the trust agreement.
- Is it hard to establish a living trust? No. Once you determine the purpose, the trustee and investment goals you desire to achieve, your attorney can prepare the appropriate trust agreement. You execute the agreement as creator (grantor) and fund the account with the assets you desire.
- I don’t have enough money for a trust. Another misconception! Living trusts are not just for the rich. Unfortunately, this misconception is perpetuated by the large banks and trust companies that cater only to the very wealthy. Old North State Trust, LLC is not like that. The great majority of our clients do not classify themselves as rich or have multi-million dollar trusts. We serve clients that need a trustee that they can count on to be around for the duration, desire to have their estate plan in order to ease the burden on the family at their death, safeguard their retirement nest egg, and provide investment management.
- Is a living trust expensive if managed by a trust company? No. Our clients often find that our annual charges as trustee are actually less than they were being charged for investment or mutual fund services. When establishing a living trust, there is a one-time cost of paying the attorney to prepare the trust agreement. This expense could range from a few hundred dollars for simple plans to a few thousand dollars when complex estate planning techniques are required. This planning could save thousands of dollars for your children or other heirs. An upfront investment can be an extremely cost-conscience decision later on.
- Can a living trust avoid probate? Yes. When someone dies, their will must be proven valid (probated) since the will generally controls the estate settlement process. Because a living trust is a separate legal entity, assets that have been placed in the trust are not subject to probate when the grantor of the trust dies, but is still a part of the “taxable estate.” Therefore, the instructions contained in the trust agreement can be carried out immediately, and usually this means estate settlement costs are reduced as well. Also, unlike the terms of your will, which become a matter of public record once the will is probated, the terms of a living trust agreement remain private between the trustee and your beneficiaries.
- Does a revocable living trust save estate taxes? Possibly. There are some estate planning techniques that can be used to take advantage of tax situations that allow for minimization of estate and gift taxes. You will need to consult with your attorney and trust adviser to determine what best fits your individual needs.
- Does a trust fail due to my mental or physical incapacity? No. When a grantor or beneficiary experiences diminished mental or physical capacity, this is when a trust becomes an even more valuable financial tool. The trustee is authorized to make payments to or for the direct benefit of beneficiaries to meet their support, maintenance and general welfare during their incapacity. Important bills such as personal income tax payments, insurance, property taxes, utilities, medical, mortgage and recurring monthly expenses can be paid by the trustee until such time as the beneficiary has made a full recovery.
- Can I retain any control if I establish a living trust? Yes. You can keep as much control as you want. Generally, the grantor of a living trust retains the power to change trustees, terminate the trust, withdraw the assets and amend the trust agreement. Remember, living trusts are flexible, useful tools.
Please call any of our Trust Officers at Old North State Trust if you would like to know more about the advantages a living trust can offer you.
Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends. The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics. Readers should be aware that the facts may vary depending upon individual circumstances. The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.
Susan Willett is the director of trust services and oversees all aspects of trust administration for Old North State Trust, LLC. Old North State Trust, a North Carolina chartered trust company, provides: asset management services; income, estate and trust tax consulting; retirement planning and administration; and trustee and estate services to both individuals and businesses. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit www.oldnorthstatetrust.com or call