Do I Need a Trust if My Last Name isn't Rockefeller?

Do I Need a TrustWhat if you died today? Do you have a revocable living trust in place so your assets will easily pass to your heirs without any cost or time delay? If so, does your trust have an incapacity clause in it? It’s important to have your affairs in order to protect yourself and your family and make certain everything is handled according to your wishes in the event of a tragedy.

No matter what your assets or financial health, at a minimum, it might benefit you to have three documents: a will, a revocable living trust with an incapacity clause, and an advance directive with a durable power of attorney for healthcare.

Having a trust ensures you leave loved ones properly cared for, prevent disagreements among possible heirs, and prevent unnecessary attorney fees from eating away at your estate.  A trust is a legal document which states the contents of the trust are being held for another party. The “trustee” manages the assets in the trust and distributes them. The “beneficiary” is the person to whom the property will go. The terms of the trust outline when the property will be distributed, who it will go to, who is in charge of the trust, and how the property can be used. For example, will the assets pay for Susie’s future living expenses or will they be designated for her education? One common clause: only earnings may be taken out of the trust, while the original amount given to the trust must remain intact.

Trusts allow your assets and possessions to skip the probate court process and go directly to intended recipients, saving time and money spent on court and attorney fees.

There are many different types of trusts and each one has its own rules about when ownership can be transferred and to whom. The most common type, a revocable trust, is one in which the “grantor” (the people/person who give(s) the property to the trust) is also the trustee and beneficiary. This type of setup allows people who have money in non-retirement accounts, which lack “transfer on death” instructions, to avoid the time and cost spent in probate. Additionally, the amount of assets and the name of the beneficiary would not be made public, which would occur in probate. A trust created while the grantor is still alive is called a living trust. Some living trusts are revocable and others irrevocable, depending on how the trust is made and what restrictions are placed on the assets in the trust. A trust created upon the grantor’s death via a will is known as a testamentary trust and is irrevocable. A trustee takes actions specified by the terms of the trust, upon the death of the grantor.

If your name isn’t Rockefeller, does having a trust matter? “A revocable living trust is probably the most powerful. If set up correctly, it can take care of everything for you, both while you are alive and after your death,” writes Suze Orman in Women & Money.

“A living revocable trust serves as far more than just where assets are to go upon your death and, it does so in an efficient way,” Orman says. Unlike a will, a living trust also covers you while you are still alive, Orman noted.

Orman stresses that your trust must include an incapacity clause. “To my mind, an incapacity clause is an absolutely critical feature of a trust. This section of your trust will grant your successor trustee – the person you designate – legal authority to handle your affairs, should you become incapacitated. A good trust will also designate a backup trustee in case your successor trustee is incapable of fulfilling his/her responsibility as a trustee,” Orman writes. A trust requires planning and maintenance and can be more expensive to create than a will. Upon your death, however, the trust will be immediately transferred to your beneficiary, with no lengthy and costly probate involved. A living trust fund becomes valid only after the creator executes the necessary documents and then “funds” the trust, by transferring assets into it. The specific process for moving assets into the trust by the “grantor” depends on the type of property involved.

The two primary ways to move assets into a living trust are:

Assigning Ownership Rights: The grantor owns, but does not hold legal title in assets such as: works of art, antiques, jewelry, promissory notes, intellectual property, and certain business interests.  These can be moved into the trust by assigning ownership rights from the individual to the trustee.

Changing Title: Where the grantor holds title in assets such as real estate, bank accounts, investment and brokerage accounts, and stock and bond certificates, these may be moved into the trust by changing the name of the owner from the individual to the trustee.

As the creator of the trust you may choose to list the trust or trustee as a beneficiary for other assets, including life insurance, pensions and retirement accounts, but this technically does not move those assets into the trust. Consider consulting with a financial expert or tax professional about the tax impact of distributing these types of assets to a trust, upon your death.

While a living revocable trust may continue as originally written, until your death, it is revocable. It means you can change provisions, add or remove assets, make other modifications, and even revoke the trust entirely during your lifetime.

For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.

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