Your Questions – Answered

Q: Do I lose any control over my assets after I transfer them into my Trust?

A: No, because you are both the creator (Settlor), as well as the Beneficiary, and the Trustee of your trust, and you manage the trust for your own benefit. You continue to control all of your assets the same way as before: you can still buy, sell, borrow, gift, and transact in any way you wish with your assets in the same manner as when you owned them in your name alone. This is also true for buying, selling, refinancing, and leasing your real property.

Q: What happens if I cannot act as Trustee?

A: You will name a successor Trustee in your trust – he or she will step in your shoes to represent the trust when you are unable to act as Trustee, and will take over the trust management for your benefit, since you remain the trust beneficiary during your life. The Successor Trustee can take over under three circumstances: if you voluntarily resign as Trustee, if you become incapacitated and can no longer act as Trustee, or when you pass away. After your death, the Successor Trustee will manage your trust for the benefit of the trust beneficiaries that you designated in the distributive provisions of your trust.

Q: Can’t I just utilize the “Joint Tenancy” title to avoid Probate of real property?

A: For a married couple, holding real property as joint tenants will avoid probate at the first death because of the joint tenancy’s right of survivorship feature. However, when the surviving owner becomes a sole owner of the property, at his/her second death the real property will need to be probated. Most notably, the joint tenancy title does not allow for a stepped up cost basis of the survivor’s half of the property to the decedent’s date of death value. This results is a significantly higher capital gains tax if the surviving spouse sells the property. Conversely, if the property is owned in trust as community property, at the first death the entire property receives a stepped up cost basis to date of death value, which helps bridge the gap between the original cost basis (original purchase price of the property) and its sale price, thus reducing capital gains.

Q: Are there any ongoing trust maintenance costs? Will the Trust affect my property taxes or how
I file my tax return?

A: A living trust does not cause any ongoing management or administration costs. Unless you need to amend the Trust, which should be done through a formally drawn up, signed and notarized Trust Amendment, there are no additional fees or costs once the trust is set up. Popular reasons to execute a Trust Amendment are if you wish to change your Successor Trustee or change the distributive provisions of the trust. You don’t need to change the trust if you just buy or sell trust assets, such as your home. You only need to remember to title assets you acquire in the name of your trust. Transferring assets to your trust is exempt from property tax reassessment, and having a trust does not change the way you file or sign your income tax returns. After setting up the trust, all you have to do is ensure that title to any newly acquired assets is conveyed into your trust.

Q: Do I still need a Will if I set up a Trust?

A: You do need a Will – which is known as a “Pour-Over” Will, because at your death it “pours” into the trust any assets which are inadvertently not titled in the trust, and would otherwise default to your probate estate. The pour over will does so by naming the trust as the sole beneficiary of the Will. It therefore serves as a safety net to catch any assets not titled in the trust at death.

Q: How is a family trust affected by a divorce?

A: A marital dissolution by operation of law revokes all beneficiary and fiduciary designations in a family trust with regard to each of the former spouses. Following the divorce, each former spouse will need to address his and her own separate estate planning, and protect from probate by setting up an individual trust. Furthermore, to comply with the Marital Settlement Agreement and Divorce Decree issued by the Family Court Judge, assets from the family trust will need to be retitled into the individual trusts of each of the spouses.

Q: How does a Second Marriage trust work?

A: This type of trust is especially useful in the case of a second marriage when each spouse comes into the marriage with significant separate property assets, and each has children from a prior marriage. Without proper estate planning, there is a possibility that the children of one of the spouses will end up with all of the couple’s property and the children of the other spouse will get nothing. A properly drawn living trust ensures that the interests of each set of children are properly protected, while the surviving spouse remains adequately cared for during his or her life. In this case, a trust is the only way to accomplish such goals, while also avoiding formal probate administration.

Q: How does a Trust avoid a Conservatorship?

A: If you become incapacitated and are unable to conduct your financial affairs on your own, and you do not have a trust and a Durable Power of Attorney for financial management, your family may have to petition the court to have a Conservator appointed for you. A Conservator will take charge of your assets and have signing authority over your property. Conservatorship cases are strictly supervised by the Courts and involve a number of cost-intensive formalities. Having a living trust and a durable power of attorney for financial management as well as one for health care, enables a trusted person to conduct your financial and medical affairs without any court involvement, while protecting your privacy and maximizing your assets for your benefit rather than spending them on court costs and fees.

Q: Why have a Health Care Power of Attorney?

A: If you become incapaci¬tated, your Health Care Agent will have the ability and authority to make medical decisions for you, authorize medical treatment, review medical records, and ultimately, if you so desire, will have the power to make life and death decisions, including terminating life support. Furthermore, under the Health Care Insurance Portability and Accountability Act of 1996 (“HIPAA”), your Agent will have your express permission to request and receive your medical records, and the holders of such records will be released from liability to surrender them.

Q: Can I still make medical decisions for my child after he or she turns 18 and legally becomes an Adult?

A: Be mindful that as a parent, you can do so for your children without their express permission only until they reach age of majority. After they turn 18, you can no longer request and receive their medical records or authorize medical treatment on their behalf. Therefore it is wise for parents of college age children to have Health Care Powers of Attorney and HIPAA Releases signed by their (now adult) children, appointing the Parents as Health Care Agents.

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