What is Estate Planning?
Estate Planning is the process whereby you create a strategic plan for 1) the management and distribution of your assets in the event of your death or incapacity, and 2) the carrying out of your wishes with regard to the care taking of your person or remains upon your incapacity or death. Estate planning requires you to marshal all of your assets and make specific determinations as to who do you want to receive them. It requires you to evaluate the financial and tax consequences of those actions and prepare for them.
How does a living trust avoid probate?
When you execute the living trust declaration and then properly fund the trust, what you have done is that you have created a legal entity separate and apart from yourself that is now fully functioning doing whatever it is that you told it to do. Then, when you funded your trust, you changed the name of the owner of your assets from you individually to you as Trustee of your trust. So at that time, you are still in complete control of your assets because you are the Trustee of the trust and whoever is Trustee is who manages the assets that the trust owns. You are still the BENEFICIAL owner of your assets ( i.e. the assets are yours to do with whatever you please) but you are no longer the “LEGAL” owner of record.
The Probate Court is only concerned with who the legal owner of an asset is. So now you have your trust and are buying and selling things just like before except that now instead of signing the contract as “John Q. Public”, you now sign everything as “John Q. Public, Trustee”, it’s that simple. Legally speaking, you now own nothing, your trust owns everything. So when you die, since you don’t own anything, there is nothing to take to the Probate Court. But when you died, your living trust didn’t die, it just keeps on going, that is why they call it a living trust. A Living Trust holds title to your assets and has a life of its own.
When you originally set up your trust, you made yourself (and your spouse if married) the trustee who controls and manages the assets of the trust. But also at that time, you chose who you wanted to take over for you when you (and your spouse etc.) can no longer manage it. That person is called a Successor Trustee and they thus have the same legal powers that you did so that they can sign any documents necessary to carry out the management and disposition of your assets that you specified in the original trust declaration. The successor trustee follows your specific directives on what to do much the same as an executor would, except there is no probate. It is completely private, requires no court supervision, can be administered much quicker with less expense, and is more difficult to contest.
What is the difference between a Will and a Living Trust?
A will is simply a document which lists out four basic things. It says whom do you want to be your Executor, who is to receive your assets upon your death, whom do you want to be guardians of your children and what desires do you have regarding burial/cremation etc. It has no legal authority of its own and is not a separate legal entity, it is merely a statement of your intent and therefore it must be administered through the Probate Court in order for it to gain full legal status for estate administration purposes. Having to go through the probate process is a time consuming arduous ordeal for even the most patient person and last for anywhere from nine months to two years, longer if contested.
A living trust is a separate legal entity and has full legal authority on its own and thus can avoid the probate system entirely, can manage all of your estate distribution and management desires, can accomplish substantial savings on estate taxes, and can remain totally private so that no one knows your business except those persons that you want to have knowledge of your personal and financial affairs.