Regardless of which estate planning tools and documents you decide to include in your estate plan, keep in mind that it will be your loved ones who must ultimately locate and utilize most of them. In fact, one of the most common stumbling blocks to probating an estate is missing documents. Leaving important documents, such as your Will, in a safe deposit box results in a “chicken and egg” problem. Your loved ones will eventually need the documents to claim life insurance proceeds, transfer assets, and probate your Will. The only way for a loved one to gain access to the box is to show proof that he/she is the Executor of your estate; however, the Executor is appointed in a decedent’s Will — which is located inside the box under this scenario. Instead of keeping important estate planning documents in a safety deposit box, keep an original set of documents at home in a fireproof safe and give your estate planning attorney another set of originals. Whether you choose to share copies with loved ones or not is your decision; however, you should always make sure your close loved ones have your estate planning attorney’s contact information so they can contact him/her if documents appear to be missing or they are not sure what documents exist.
At its most basic, a trust is a fiduciary arrangement wherein a third party holds assets for one or more designated beneficiaries. All trusts share the same basic elements necessary for formation, including:
For a trust to be a successful addition to your estate plan you need to create the right type of trust. The first consideration is whether you need a testamentary or living trust. A testamentary trust is created during your lifetime but does not activate until triggered by a provision in your Last Will and Testament. A living trust, on the other hand, activates as soon as it is created. Living trusts can be further divided into revocable and irrevocable living trusts. If you create an irrevocable living trust you will not be able to modify or revoke that trust after it becomes active. Conversely, a revocable living trust can be modified or revoked by the Settlor anytime.
A trust, of any type, is established by creating and executing a written document known as a “trust agreement.” The trust agreement sets forth the terms that are used to administer the trust. As long as a term is not unconscionable, impossible, or illegal, it must be followed by the Trustee during the administration of the trust. Terms will typically cover things such as:
In addition, most Settlors create a “Schedule of Assets” that is attached to the trust agreement. This makes it easier for the Trustee to know what assets are owned by the trust at any given time. When assets are transferred in or out of the trust the schedule is adjusted accordingly.
The primary function of a Trustee is to administer the trust according to the trust terms as created by the Settlor. Within that general job description are a wide range of duties and responsibilities, including, but not limited to, the following:
The success, or failure, of your trust will depend, to a great extent, on your Trustee. For this reason, you should choose your Trustee wisely. Your initial thought will likely be to appoint your spouse or maybe a close family member; however, doing so may cause family conflict and even result in litigation down the road. When the beneficiaries of a trust already have an established relationship with the Trustee it can make administration of the trust more difficult for the Trustee and lead to resentment on the part of the beneficiaries. Appointing a professional Trustee is often a better option.
One of the many advantages to using a trust to distribute estate assets is that a trust bypasses the probate process whereas a Last Will and Testament is required to go through probate. Just because you have established a trust, however, does not mean you can do away with your Will. You may, however, choose to replace your current Will with a “Pour-Over Will.” As the name implies, a Pour-Over Will is a specific type of Will that directs assets left outside of your trust at the time of your death to “pour over” into the trust.
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