Three Controls a Revocable
Living Trust Provides Best

Good Morning Relaxing Retirement Subscriber,

While a Will, Durable Power of Attorney, and Health Care Proxy are all important and necessary pieces of an effective estate plan, a revocable Living Trust provides three levels of control that the others do not.

Control Over Timing

A properly structured living trust allows you to specify when you want who to get what in a way that a will does not. It gives you the power to delay passing on your assets to one or more of your beneficiaries while paying out immediately to others. You can stagger the delivery of funds over time, or stipulate conditions on their distribution on a person-by-person basis such as having funds available upon graduation from college.

Control Over Circumstances

Setting up a living trust gives you the freedom to decide, in advance and with great specificity, what you want to have happen in every scenario: if one spouse is incapacitated and the other is not, if both are, if one is healthy and the other passes away, and in the event that beneficiaries divorce. A living trust allows you to spell out exactly what happens, who’s in charge, who gets to make what decisions, and where your assets go. A will can’t give you that level of control.

Control Over Probate

Probate involves validating a person’s last will and testament in a court of law.  The will must be presented by an attorney to the court in the jurisdiction where you live. Once a judge declares it valid, notice is given to any potential debtors, and all of your assets are listed in the newspaper. Although it’s time-consuming, expensive and invasive, every will must be validated before it becomes a legal document on which anyone can act.

If you’ve ever had the unfortunate job of settling an estate for a family member or friend who didn’t have a proper plan in place, then you know just how awful the probate process can be.

A properly funded revocable living trust allows your family to avoid the probate process entirely, something a will can’t do.

WARNING #1: Your estate planning attorney may suggest that you don’t need a living trust because your estate will owe no federal estate taxes upon your death based on current laws.

And, in many cases today that is true because estate tax exclusions have rapidly increased in the past few years to $11.4 million per individual on the federal level or $22.8 million for couples.

In Massachusetts, however, the estate tax exemption is still only $1 million per person.

However, the real problem as I described above is the cost and delay of the probate process.  And, only a properly funded living trust can help you avoid it.

WARNING #2: “Creating” a Living Trust alone does not avoid probate.

You must take step two which is “funding” your trust while you’re still living. Funding simply means re-titling your assets to your trust prior to our death.

The first step is to determine which assets will go into whose trust (i.e. your trust and/or your spouse’s trust).  If your estate planning attorney is doing his/her job, they will spell this all out for you.

The next step is to change the title of ownership on each of your non-IRA assets, a bank account for example, to your trust so that your statement now reads “John Jones, Trustee, for the John Jones Revocable Trust” instead of just “John Jones”.

Make sure you do this with all of your non-IRA assets so nothing gets left out.

Additionally, your estate planning attorney should also spell out how your beneficiary designations should read on your life insurance, IRAs, and annuities.

** The key point here is, if you are going to name your respective trust as your beneficiary, your trust MUST qualify for “pass-through” status so your trust beneficiaries have the opportunity to save thousands of dollars in income taxes by taking advantage of Inherited IRA rules.

While you’re completing the paperwork to re-title your assets to your respective trusts, take care of all your beneficiary designations at the same time.

Committed To Your Relaxing Retirement,

Jack Phelps
The Retirement Coach

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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)