Q. What is a living trust?
A. A “living” or “inter vivos” trust is one that is set up and funded while the grantor is alive. In most cases, the grantor names his or her self as both trustee and beneficiary. In a joint trust scenario, both husband and wife are co-trustees as well as co-beneficiaries while both remain living. A living trust can be modified or revoked as long as the settlor (or settlors in the case of a joint trust) are living. A living trust should not be confused with a “testamentary trust.” A testamentary trust comes into being under the terms of a will, typically for the care of a minor child, and opens only after the grantor’s death.
Q. What is a joint living trust?
A. A joint trust is made between spouses. They act as co-settlors and co-trustees, and all of their assets are pooled together in the trust. While this can make for easier administration, it is important to know that all property held in this manner becomes marital property, and that the trust becomes irrevocable upon the death of the first spouse. Also, there may be estate tax considerations which dictate that separate trusts be used. These are important distinctions that must be taken into consideration by a couple thinking about utilizing a joint trust. The Law Offices of Robert J. Varak works to tailor the trust to the needs of every client.
Q. What is “funding” my living trust?
A. Funding is the process of transferring your assets from your individual ownership to the trust.
Q. How do I fund my trust?
A. The means of doing so differs depending on the type of assets being transferred. Property that has written title (e.g., real estate) is transferred to the trust by changing the title. Personal property is transferred to the trust using a very simple written document. Assets held in accounts (e.g., bank accounts, brokerage accounts etc.) are transferred by changing beneficiary designations. The Law Offices of Robert J. Varak provides a detailed checklist for this process as part of every estate plan which includes a living trust.
Q. Who controls the property while it is in the trust?
A. The individual named as trustee has full power over the assets in the trust. In the most common type of trust, a living or inter vivos trust, you or your spouse still have complete control.
Q. Why do I need to fund the trust?
A. You will not avoid probate if you fail to properly fund the trust. You may also fail to realize some of the estate tax benefits of your estate plan. Doing so may frustrate the purpose of your estate plan.
Q. Who is responsible for funding the trust?
A. Your attorney will put the pieces in place for funding, but you are ultimately responsible for the process. Attorneys could handle these matters, but doing so would result in substantially greater legal fees. The Law Offices of Robert J. Varak is always available to assist clients with the process.
Q. Is the funding process difficult?
A. It is not hard, but it does take a bit of time. Most of the work can be done online or through the mail. Living trusts are now so widely used that institutions are familiar with them and have streamlined procedures in place to facilitate the funding process.
Q. What if someone wants to see a copy of my trust?
A. The Law Offices of Robert J. Varak drafts its trusts in such a way that there is no substantial disclosure of personal assets or distributions. Therefore, there is little risk of loss of confidentiality if someone needs to see a copy.
Q. What assets should I put into my trust?
A. The goal is to get all of your assets placed into your trust. In the case of dual trusts for spouses, it is also desirable to maintain as close to a 50-50 distribution of assets as possible between the two trusts.
Q. How do I put real estate into my trust?
A. The process of moving real estate into your trust requires several steps, but none of them is difficult. The steps are as follows:1. Draft and execute a deed in trust and grantor-grantee statement. The Law Offices of Robert J. Varak includes deeds for all of the settlor’s real property in the cost of every living trust. Please note that every parcel requires its own deed.2. Check with your local municipality to see if they require the use of a transfer stamp. This commonly requires the payment of a small fee. Please note that you will not have to pay state or local transfer taxes in Illinois. If you live in the Chicagoland area, you can also check the following website to determine the requirements of your municipality. http://cmetro.ctic.com/forms.asp. 3. Send the deed, with at least one copy and a self-addressed stamped envelope to the local recorder of deeds, or bring the documents to the recorders office. Links to local recorders office are available at www.varaklaw.com. 4. When you receive the recorded deed back from the recorder’s office notify your mortgage company and homeowner’s insurance provider. They will need to change their records to reflect the trust as the new owner. Please note that this transfer should not trigger a “due on sale or transfer” clause in your mortgage on your residence. Nor will there be any change in capital gains exemptions or real estate tax liability. It will be just as if you never changed ownership.
Q. Should my car be put into my living trust?
A. While there is nothing preventing you from funding the trust with a car, the fact that they depreciate so rapidly and are bought and sold so frequently means that they are not typically included. You may also appear to have significant wealth and invite a lawsuit in a common auto accident case if the owner of a car is a trust. The exception to this rule of thumb is antique or extremely valuable automobiles. These are likely to either increase in value or hold a great deal of value, and as such are more appropriate trust assets. Changing title on an automobile is done via the Secretary of State. Illinois residents can find the appropriate material at http://www.cyberdriveillinois.com/departments/vehicles/title_registration/home.html.
Q. Should I transfer my IRA or 401k assets to the trust?
A. Ownership of IRA’s or other tax-deferred plans should not be transferred
to a trust, if it can be avoided. Doing so can result in serious penalties and loss
of flexibility down the road. You should however name the trust as a contingent
beneficiary of such plans. Spouses are treated as a special class under the law
for these assets, and they should be kept as the primary beneficiary in order to
insure that they are able to exercise all of their rights. Principally this means that they can roll-over an account into their own IRA or tax-deferred account. Naming the trust as a contingent beneficiary gives you some control over the distribution of these assets should something happen to you and your spouse, while preserving your spouse’s rights.
Q. How do I transfer personal property, heirlooms and the like to my trust?
A. The Law Offices of Robert J. Varak prepares a form to assign title in such property to the trust.
Q. Should I put my life insurance into the trust? If so, how do I do so?
A. Life insurance may be owned by a specialized type of trust called an irrevocable life insurance trust. Living trusts do not typically own policies, but they can be named as the beneficiary in some plans. Doing so requires two steps. First, the insurance company should be notified and their specific change in beneficiary designation form executed. Then, the insurance policy information should be added to the schedule of insurance attached to the living trust.
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