The attorneys with the Law Offices of Nay & Friedenberg explain the importance of funding a trust.
Once the goals of your living trust have been identified, your attorney drafts the trust document, and the trustor(s) and trustee(s) sign it. At this point, the trust is still an empty basket waiting to hold the trust assets.
You and your attorney should then review each of your assets individually, decide which assets should be owned by the trust, which beneficiary designations should be changed to the trust, and who will be responsible for making the transfers and changes. Once these decisions are made, ownership of all assets to be placed into the trust is changed to the name of the trustee and the proper beneficiary designations are made. This phase of establishing a trust is crucial to achieving the goals of the trust plan. An unfunded trust, or one improperly funded, will not do the job for which it was intended.
John and Sue have been married thirty years and have three healthy adult children, each married with two children. John and Sue consult an experienced attorney who assists with the identification of their goals for the trust and whose office drafts the trust agreement.
John and Sue are the trustors, the trustees, and the life beneficiaries. The three children are the death beneficiaries in equal shares, with the grandchildren taking the share of a child who dies before John and Sue. If a grandchild is to receive a share, that grandchild’s share will be held in further trust for the grandchild’s education until the grandchild reaches the age of 25.
After the trust agreement is signed, ownership of all of the assets of John and Sue are retitled as follows: “John Jones and Sue Jones, Trustees, Jones Family Trust.”
Their three children are named as successor trustees in case John and Sue can no longer serve as trustees due to loss of mental capacity or death. In the years to come, John and Sue purchase new assets in their names as trustees.
John dies first. Sue remains as the sole trustee for several years after John’s death, then appoints the three children as successor trustees prior to her death.
When Sue dies, the children meet with the attorney who prepared the trust to address any complicating issues. A plan of trust distribution is created. The children pay the expenses of Sue’s last illness and funeral and the final bills accrued by Sue prior to her death. Within sixty days of Sue’s death, the children distribute the trust assets in equal shares to each of the three of them. The 3% to 10% of the estate that would have been consumed by a probate is instead distributed to the children.
At no time was the estate exposed to a court process, and legal fees were nominal. If Sue passes away in 2011 with over $5 million in her estate, her estate will owe federal estate tax. An estate in excess of $1 million (2011 figure) requires an Oregon inheritance tax return to be filed and will likely result in the estate paying state inheritance taxes.
In that case, the complicated issue of estate tax will require additional attorney and professional fees, but still no probate will be needed.
If John or Sue had lost mental capacity due to a stroke or an illness like Alzheimer’s disease, a legal conservatorship and its high on-going costs would have been prevented as well because the successor trustees could have easily assumed management of the trust assets in such a situation.
The living trust was the most flexible, private and, in the long run, inexpensive manner in which to implement John and Sue’s estate plan.
Because the trust was revocable and amendable, John and Sue experienced no change in tax reporting or increase in their taxation bracket.
If their estate goals had changed at any time, they could have easily amended their trust to fit the new situation.
This scenario is the usual result of establishing a living trust.
An experienced estate planning attorney makes all the difference in making sure you have all the proper documents to fit your needs. Contact the Estate Planning attorneys with the Law Offices of Nay & Friedenberg of Portland, Oregon at (503) 245-0894 to set an appointment.