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SECURE ESTATE SERVICES, LLC A Guide to Living Trusts How to avoid probate costs and protect your family’s future with smart estate planning. • • • • • • • Why it Pays to Avoid Probate Court How Does a Living Trust Work Who’s Who in a Living Trust Types of Living Trusts What Goes in a Living Trust Changing a Living Trust Planning For the Future By David J. Sears, CLDP Founder of SECURE ESTATE SERVICES, LLC Questions? Call us toll free at (888) 885-6767 or visit us at www.sfsgroup.net TABLE OF CONTENTS Introduction 1 At-a Glance Estate Planning Comparison Chart 2 A Time Honored Estate Planning Tool 3 Why it Pays to Avoid Probate Court 3 How Does a Living Trust Work? 4 What is a Living Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 4 How Property is Transferred . . . . . . . . . . . . . . . . . . 4 The Benefits of Flexibility . . . . . . . . . . . . . . . . . . . . . . . . 5 Potential Tax Savings . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Protecting Your Beneficiaries . . . . . . . . . . . . . . . . . . . 5 Who’s Who in a Living Trust 6 Types of Living Trusts 7 Revocable & Irrevocable Trusts . . . . . . . . . . . . . . . . . . 7 Individual & Shared Trusts . . . . . . . . . . . . . . . . . . . . . . . 7 8 What Goes into a Living Trust Protecting Your Most Valuable Assets . . . . . . . . . . . . 8 Minor Children as Beneficiaries . . . . . . . . . . . . . . . . . . 8 Handling Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 . Leaving Assets Out of Your Trust _______ _9 Protecting Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . 9 Why You Need a Pour – Over Will . . . . . . . . . . . . . . . . 9 10 Changing a Living Trust Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Revoking a Living Trust . . . . . . . . . . . . . . . . . . . . . . . . . 10 11 Planning For the Future A GUIDE TO LIVING TRUSTS ii Introduction The popularity of the living trust has soared in recent years as more and more people discover its significant estate planning benefits. Like a last will and testament, a living trust allows you to designate beneficiaries for your assets, as well as designate someone responsible to manage your assets. But unlike a last will & testament, a living trust is not subject to probate, a complex legal process that can tie up your property for years and consume a large portion of your estate’s value in court fees. As an added benefit, a living trust keeps the details of your estate private. In many cases, it can even reduce certain estate taxes. And here’s the best part – creating a SECURE ESTATE SERVICES, LLC living trust is just as easy as making a Will – and very affordable. Key Benefits of a SECURE ESTATE SERVICES, LLC Living Trust Immediately transfers property to loved ones Avoids time – consuming court procedures and legal fees Ensures privacy (probate is a matter of public record) May help you avoid or reduce certain estate taxes Can be revised or revoked at any time Transfers management of your property if you become physically or mentally incapacitated Keeps the assets of your minor beneficiaries safe until they reach a responsible age or achieve certain goals A GUIDE TO LIVING TRUSTS 1 At – a – Glance Estate Planning Comparison Chart A Last Will and Testament A SECURE ESTATE SERVICES, LLC Living Trust Can take months or even years for your loved ones to receive inheritance. Quickly transfers property to loved ones upon your death. Can eat up to 20% of your estate’s value in court administration costs. Avoids Probate Court, saving your loved ones significant legal and court fees. Is a matter of public record. Is a private matter between you and your beneficiaries. Establishes guardianship for minor children and specifies last wishes. Comes with a complimentary pour-over will that allows you to establish guardianship for minor children and specify last wishes. Does not transfer management of your property if you become physically or mentally incapacitated. Transfers management of your property if you become physically or mentally incapacitated. Can be revised or revoke at any time. Can be revised or revoke at any time. A GUIDE TO LIVING TRUSTS 2 A Time Honored Estate Planning Tool It may seem like a modern idea, but the “trust” originated centuries ago. A Roman citizen and his wife had planned to leave their property to their children. The only problem was the man’s wife was not a Roman, and under Roman law, their children would be barred from their inheritance. To get around this problem, the man willed his property to a friend who promised he would use it to provide for the children. When the citizen died, his friend went back on his word and used the property for himself. When Caesar Augustus learned of the betrayal, he took the matter to the courts to be resolved. As a result, the trust was established as a centerpiece of Roman law. Today, the living trust endures as a valuable estate planning tool. It offers many benefits, but perhaps the most important one is the ability to circumvent probate court. Why it Pays to Avoid Probate Court What is Probate? “In many cases, probate can Probate is the legal process through which take up to 3 years to complete your property is distributed to your and take as much as 20% of your beneficiaries. During probate, the court estates total value” system must determine the validity of your will, appraise and inventory all of the assets in your estate (money, real estate or other items of value), pay any outstanding debts, and then distribute whatever is left according to the instructions in your last will & testament. If there is no last will & testament, the state distributes your assets according to state succession laws. Probate is often expensive, complicated and time – consuming. In many cases, probate can take up to 3 years to complete and take as much as 20% of your estate’s total value. But by planning ahead with a SECURE ESTATE SERVICES, LLC Living Trust, you can leave property to your loved ones without subjecting them to delays, expense, and hassle of probate court. A GUIDE TO LIVING TRUSTS 3 How Does a Living Trust Work? What is a Living Trust? When you create a Living Trust, you are establishing a separate legal entity to hold whatever property or valuables you choose to place inside it. In fact, one of the benefits of a Living Trust is that it allows you to gather all of your significant property (bank accounts, stock certificates, real estates, etc.) into one convenient “container” or imaginary “safe”. It’s an easy way to track all of your assets and manage them as a single unit. As the creator or “grantor” of the trust, you retain complete control over your assets by appointing yourself as the trust’s initial trustee. You can do whatever you wish with the property in the trust – this includes transferring into or out of the trust. But the main benefit of creating a living trust a living trust is that the property you place inside is not subject to probate court. By avoiding probate court, you help speed the transfer of your assets to your beneficiaries. Compared to gifting property through a last will & testament, transferring property through a living trust is fast, easy and private. “Compared to gifting property through a Last Will & Testament, transferring property through a Living Trust is fast, easy and private.” A Declaration of Trust A Living Trust is created with a document known as a Declaration of Trust. This is the legal document that names your beneficiaries, describes your trust property and provides for the terms of its transfer. The living trust is managed by a trustee. In most cases, you will want to designate yourself as the initial trustee. You will also need to designate an individual or institution to succeed you as a “successor trustee”. You can always change the named individual or institution whenever you’d like. The trustee is responsible for managing the property transferred into the trust. How Property is Transferred Upon your death, the person you assigned to succeed you as trustee (the successor trustee) takes over management of the trust and sees that all of your gifts are distributed to your beneficiaries. Your successor trustee may not change the trust, which becomes irrevocable at the time of your death. In other words, you can revise your trust while you’re alive, but it cannot be changed after you’re gone. A GUIDE TO LIVING TRUSTS 4 The Benefits of Flexibility The flexibility of a revocable living trust is one of its many advantages. You can change your mind, make amendments or end the trust anytime you wish. You can add property to your trust, transfer ownership of trust assets back to yourself, add or remove beneficiaries, name a new successor trustee, and sell, give, or mortgage property owned by the trust. When the time comes, the transfer of your property will take place between the members of your family and the successor trustee that you name. There’s no need for lawyers or the court to distribute your property. The transfer of assets is kept confidential because a living trust does not become matter of public record. “There’s no need for lawyers or the court to distribute your property. The transfer of assets is kept confidential because a living trust does not become matter of public record.” Potential Tax Savings While most living trusts are created for the purpose of avoiding probate, you may also benefit from savings in certain kinds of estate taxes. An AB living trust (described under Types of Living Trusts) can mean significant tax savings for a married couple with a combined estate value greater then the applicable federal estate tax exemption amount. Protecting Your Beneficiaries An additional benefit of a living trust is that it allows you to control when your beneficiaries will receive their inheritance. For example, if your beneficiaries are minor children at the time of your death, the trust can hold their assets until they reach a certain age or achieve certain goals. A GUIDE TO LIVING TRUSTS 5 Who’s Who in a Living Trust Parties to the Trust Grantor: the person who sets up the trust. The grantor is also someone referred to as the “donor” or “settlor”. Trustee: the person designated to manage the trust assets. In a revocable trust, the grantor and the trustee are usually the same person. Successor Trustee: the person who will manage the trust assets if the grantor dies (or becomes incapacitated). The Successor Trustee is in charge of managing the assets in your trust for the benefit of the trust beneficiaries as well as transferring the assets as directed by the trust. Beneficiaries: the people or entities that will receive the property in your trust. The grantor (you) is the original beneficiary, and those who receive benefits after your passing are known as “remainder beneficiaries”. A GUIDE TO LIVING TRUSTS 6 Types of Living Trusts Revocable & Irrevocable Trusts A living trust is often called a “revocable living trust” because it allows you to revoke or change the terms of the trust however you wish, anytime you like, as long as you live. Think of it as a living document, open to continual revision. An irrevocable trust, “A SECURE ESTATE on the other hand, can’t be changed by SERVICES, LLC Living Trust the grantor. A SECURE ESTATE SERVICES, LLC Living Trust can be either a Revocable or can be a revocable living trust, an irrevocable trust depending upon your which means you can change it needs. whenever you like.” Individual & Shared Trusts As the name suggests, an individual living trust is used by one person. A shared trust, on the other hand, is created to manage shared property. If you and your spouse, for example, create a trust together, you would be required to state in the trust document that you both want your shared property transferred into the trust. If you don’t share property equally, you’ll need to specify the percentage of ownership you share. Two of the most common shared trusts are the joint living trust and AB living trusts. SECURE ESTATE SERVICES, LLC offers both Joint and AB living trusts. A Joint Living Trust is used by more than one person. Although it is often used by married couples, non-married couples may also create a joint living trust. Alternatively, married couples have the option of creating their own individual living trusts. An AB Living Trust is a special tax-savings trust that is typically used by married couples who together own assets that are greater than the current federal estate tax exemption. Also known as an exemption trust, an AB trust is sometimes preferred over a traditional joint trust because of its flexibility and particular tax benefits. A GUIDE TO LIVING TRUSTS 7 What Goes into a Living Trust Protecting Your Most Valuable Assets Generally speaking, a trust is created to hold your most valuable property: your home, investment real estate, business interests (including stocks, bonds and mutual funds), money market accounts, brokerage accounts, royalty contracts, patents and copyrights, jewelry and antiques, precious metals, works of art, and other valuable collections. The following assets are commonly included in a Living Trust: Real Estate Savings accounts Brokerage, mutual fund and other financial accounts Royalty, commission, and other non-real estate contracts Proceeds from life insurance policies and annuity contracts Stocks or bonds held directly in certificate or book form Ownership interests in private or closely-held corporations Partnership interests, such as real estate partnerships, investment clubs and regular business partnerships Sole proprietorships and other business interests Other significant property or assets Minor Children as Beneficiaries If you plan on naming minor children as beneficiaries in your living trust, you may want to consider designating a trusted adult to manage your beneficiaries’ property until they are old enough to manage it themselves. This includes any beneficiary under the age of eighteen, or any beneficiary you feel is not yet sufficiently mature to handle his or her inheritance responsibly. There are two ways to designate an adult to manage your beneficiary’s property: (1) through a Childs Trust or (2) through a Custodianship. Both are a type of sub-trust within your living trust, and both are effective ways to ensure that an adult is put in charge of the inheritance until your child reaches the age of majority set forth by law – generally 18 or 21 but up to 25 years of age in some states. A SECURE ESTATE SERVICES, LLC Living Trust can include a sub-trust option to protect the financial future of your minor children. Handling Debt Often, items are put into a living trust that are not yet owned free and clear. A good example is a home carrying a mortgage. If your beneficiaries receive a home with money still owed on it, they would be responsible for paying the mortgage. A GUIDE TO LIVING TRUSTS 8 Leaving Assets Out of Your Trust Protecting Other Assets Certain types of property may be exempt from probate or subject to a streamlined probate process. These include the following: Personal checking accounts Property you buy or sell frequently Automobiles (unless they are particularly valuable, such as vintage and/or rare automobiles) IRAs, 401(k)s, Keogh, and other tax-deferred retirement plans Pension accounts, life insurance policies and annuities (beneficiaries are customarily named in the policy contract and will receive any monies outside of probate) Income or principal from another trust Property held in joint tenancy Why you need a Pour-Over Will Many living trusts include what is known as a pour-over will. A pour-over will transfers or “pours” into your trust any assets not already owned by your trust at the time of death. This includes property such as checking accounts, cars and other property. “A pour-over will transfers or “pours” into your trust any assets not already owned by your trust at the time of your death.” As long as your property is not held in joint tenancy, or subject to other contractual arrangements, a pour-over will ensures that your assets are distributed to your heirs according to the terms of your trust. More importantly, a pour-over will allows you to name a guardian for minor children and specify any last wishes. A SECURE ESTATE SERVICES, LLC Living Trust comes complete with a complimentary pour-over will. A GUIDE TO LIVING TRUSTS 9 Changing a Living Trust Amendments Change in life is inevitable. And there are many life changes that will require amending your living trust. A revocable living trust may be amended (changed) or revoked (ended) anytime as long as you live. This flexibility is one of the reasons that living trusts are so popular. Most of the time, you’ll only want to amend your trust when a major change is necessary. Common scenarios that would require amending your trust include adding property to your trust, moving to another state, marrying, having a child, the death “Although you can choose to of a spouse or major beneficiary, or selling end the trust at any time, it’s or giving away property designated to a trust beneficiary. generally easier to amend an existing living trust than to Although you can choose to end the create a new one.” trust at any time, it’s generally easier to amend an existing living trust than to create a new one. Changing your living trust is a simple procedure. Included in your SECURE ESTATE SERVICES, LLC Living Trust is several Amendment to Living Trust documents that allow you to amend your trust at any time. If you make subsequent amendments, you’ll need to refer to both the original trust document and all amendments that you have made. With a SECURE ESTATE SERVICES, LLC Living Trust, you can quickly and easily make amendments yourself or if you would like assistance, you can contact one of our specialists at our toll-free number (888) 885-6767. Revoking a Living Trust A living trust can be revoked at any time. In some cases, you may need to make so many amendments that it’s simply more practical to start fresh. For example, you should revoke a shared living trust if you get divorced. You and your former spouse can then make new, individual living trusts for yourselves. Depending on the type of living trust, there are certain restrictions on who can make changes or amend the trust. If you have an individual living trust and have named yourself as the original trustee, you can revoke it yourself. A shared Living Trust and an AB Trust can be revoked by one of the Trustees. However, it takes both parties to amend it. A GUIDE TO LIVING TRUSTS 10 Planning For the Future One of the goals of good estate planning is to ensure the financial security of your loved ones. While nothing can replace your presence in their lives, with the right estate planning tools, you can continue to care for them even after you’re gone. A SECURE ESTATE SERVICES, LLC Living Trust can help you by ensuring that your gifts go directly to the people you love – quickly, privately, and without the delays and expense of probate. Creating a SECURE ESTATE SERVICES, LLC Living Trust is fast, easy and affordable. And you can do it from the comfort of your home, office or feel free to visit our corporate office. To get started call us at (888) 885-6767, we will arrange for a free consultation to meet with you and review your personal estate planning requirements. You will need to answer a series of straight forward questions, and we take care of the rest. We prepare your living trust, review for accuracy and personally deliver, execute and fund your living trust, to be sure that your estate plan is in properly in place. In addition we offer free annual reviews of your estate plan to ensure that your estate plan is up to date. Questions? Call us toll free at (888) 885-6767 or visit us on-line at www.sfsgroup.net Take control of the long-term future of you estate with a SECURE ESTATE SERVICES, LLC Living Trust. We can help you do it quickly and affordably from the comfort of your home or office. To get start call us today! SESCURE ESTATE SERVICES, LLC 14301 N. 87th Street Suite 116 Scottsdale, AZ 85260 A GUIDE TO LIVING TRUSTS 11