Farm Estate and Succession Planning
This blog focuses on making complex and difficult topics in estate and business planning understandable and applicable to the reader.
Revocable Living Trust - General Overview
Sep 14, 2011
A revocable living trust is a legal document that holds title or ownership to your real property and assets. It is an estate planning "vehicle", in that it includes the details and instructions for how you want your estate to be handled at your disability and at your death. The first thing to understand with a living trust is the importance of "funding your trust." Funding is the process of transferring the name on accounts or property to the name of the trust. For a trust to be effective it has to own title to the property or asset. Funding can be a tedious and time consuming process, one that cannot be taken lightly, in order for the trust to work as you intended. All of your investments (not retirement accounts) need to be in the name of the trust. All of your life insurance policies and bank accounts should be in the name of the trust as well. All of your real property, personal property and related assets (including farm machinery) should be in the name of the trust. Basically, everything you own should be owned by your trust. Many people find that this is a difficult process. This is something to discuss further with your attorney if this vehicle interests you.
One area that a trust works well in is if you own real property in multiple states. For example, if you find yourself owning your farmland here, and also a condo in Arizona, or Florida, etc., a trust is a good vehicle to avoid multiple probates. If you have real property in more than one state, you have to have probates in more than one state.
It is necessary for you, as trust makers, to appoint trustees of your living trust. You both can be the primary trustees of your living trust, receiving full control to buy, sell, borrow or transfer in the case of a spouse's death. After both spouses pass, the living trust identifies the person or persons who will act as successor trustee. The living trust gives that person the right to manage all assets on behalf of your wishes made known in the trust document.
Please understand that there are no tax or asset protection tools for you as trust makers when utilizing a living trust. This is a common misconception by many. If something happens where there is a bill, or a lawsuit, etc., the assets in the trust are at risk. Also, a living trust has no effect whatever on any tax savings, whether income tax, gift tax or like taxes. The very same tax planning can and usually does take place in a variety of estate planning tools.
It is also necessary to have a will, along with your living trust. This will is known as a "pour over" will. It functions to put anything that you may not have funded into your living trust into it at your death. This is a good thing, as it ensures that your assets are distributed according to your living trust's instructions. However, if this method has to be used for your assets, you will not be able to avoid probate if the values transferred via the pour over will exceed those allowed under state law. Accordingly, the pour over will is a safety net, but it is crucial to properly fund a trust to ensure it works as you intended.
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