Trusts v Wills
Compiled by Kenneth Vercammen
Probate is defined as the procedure by which an Executor proceeds to admit a Will to the jurisdiction of the Surrogate Court, which is proved to be valid or invalid. The term generally includes all matters relating to the administration of estates. There are instances where Surrogate Court monitoring of the estate is desirable. Much has been written about the disadvantages of probate in other states. Following are just a few of the problems associated with probate and why certain people set up Trusts in addition to Wills.
Lack Of Privacy
Documents filed with the Surrogate Court are public information. They are available for inspection to anyone who asks. In large estates, which require an accounting, your probate file will contain a complete list of all assets devised by your Will including business assets. This lack of privacy may lead to problems among family members who now know the plan of distribution and may then contest any provisions with which they disagree. Disinherited relatives and creditors are notified and given time by the Court to contest the Will distribution.
The probate of an estate may take several months to several years to complete.
Fragmentation - Real Estate
If you own real property in more than one state, probate rules must be followed in each state in which real property is located. The cost and time may be increased.
REVOCABLE LIVING TRUST
A Revocable Living Trust is a legal device that allows you to maintain complete control over your assets and AVOIDS PROBATE.
Because there is no probate of a Living Trust, your private financial matters remain private, there are no probate costs, no long delays and loss of control, and no fragmentation of the estate. However, since you still control the trust, it cannot shield assets from Nursing Home, Medicaid or Estate Taxes. To do that, you will need to hire an attorney to prepare an Irrevocable Trust. Fees exceed $3,000.
Some persons set up trusts for children under age 21 for the following reasons:
-Child has disabilities and cannot own property themselves or otherwise lose government assistance. You would have to hire an attorney for a Special Needs Trust
-Substance abuse problems
- credit problems
Example of language in the Will:
Any portion of my residuary estate, which becomes distributable to _____, shall be held as a separate trust by my Trustee. The Trustee shall apply such amounts of income and principal as they, in their sole discretion, deem proper for the health, maintenance, education, welfare, or support of such beneficiary and shall accumulate any unexpended income not needed for the above purpose, paying and transferring the portion held in trust to the beneficiary upon his or her attaining the age of ______ years. Prior to his or her attaining the age of _____ years, my Trustee may apply such income or principal for the benefit of such beneficiary directly or by payment to the person with whom such beneficiary resides or who has the care or control of such beneficiary without the intervention of a guardian. My Trustee shall not be obligated to supervise or inquire into the application of such amounts by such person, and the receipt of such person shall be a complete release of my Trustees.
You Maintain Complete Control Over Your Property In a Revocable Living Trust
The principle behind a Revocable Living Trust is simple. When you establish a Living Trust, you transfer all your property into the Trust, and then name yourself as trustee, or you can name you and your spouse as co-trustees of the Trust. The trustees maintain complete control over the property, the same control you had before your property was placed in trust You can buy, sell, borrow, pledge, or collateralize the trust property. You can even discontinue the Trust if you choose. That is why it is called a "Revocable" Living Trust. We will explain the "Irrevocable Trust" at the end of the article.
Transferring Property Into the Revocable Living Trust
The transfer of title to property into the Trust is a relatively simple matter. Anywhere you have assets, you will get help in transferring your property into the Trust. Your attorney, securities investor, etc., will provide you with assistance needed to transfer your property into your Revocable Living Trust. Your attorney will provide the information and assistance you need to properly fund your Trust.
Probate records are public, your Revocable Trust documents are private. A Revocable Living Trust will safeguard the privacy of your family and your private financial matters.
Naming A Trustee
Most people name themselves and their spouse as the initial Trustees of their Trust. This is usually true unless one spouse is incapacitated to the point that he or she is not able to manage your assets in the same way you do now.
Gifts To Religious And Charitable Organizations
Many people wish to give a portion or sometimes all of their assets to a religious or charitable organization in order to carry on the work of those organizations that have given them comfort or peace of mind during their lifetimes. This is easily accomplished with a Revocable Living Trust.
Marital Tax Deductions
Federal estate taxes must be paid on any estate worth more than $3,500,000 in 2009 beginning at a tax rate of 37%. Your estate includes not only the current value of your real estate, but also the face value of any life insurance policies, pension or retirement benefits, IRA accounts, bank accounts, stocks and bonds, etc. When you add these all together, and subtract your debts, your might have imagined.
Current Federal tax laws allow you to leave an unlimited amount to a spouse, tax-free. When your spouse dies, the estate is entitled to a $5,000,000 in 2009 tax exemption. The first $5,000,000 in 2011 goes to your beneficiaries free of estate tax.
A Revocable Living Trust can easily be structured to automatically create separate Trusts upon the death of either your spouse. Here's how it works. If the wife dies first, the husband has total control of his Trust. Also, for the remainder of his life, he receives all income from her Trust and has the use of the assets whenever needed for living expenses. When he dies, each Trust will claim its tax exemption, and some will go tax-free to their children, or any other beneficiary they designate, without having to go through probate.
Irrevocable Trust: A trust, which cannot be changed or canceled once, it is set up without the consent of the beneficiary. contributions cannot be taken out of the trust by the grantor. Irrevocable trusts offer tax advantages that revocable trusts don't, for example by enabling a person to give money and assets away even before he/she dies, opposite of revocable trust.
Irrevocable Trust Accounts _Irrevocable trust accounts are deposits held by a trust established by statute or a written trust agreement in which the grantor (the creator of the trust - also referred to as a trustor or settlor) contributes deposits or other property and gives up all power to cancel or change the trust.
An irrevocable trust also may come into existence upon the death of an owner of a revocable trust. The reason is that the owner no longer can revoke or change the terms of the trust. If a trust has multiple owners and one owner passes away, the trust agreement may call for the trust to split into an irrevocable trust and a revocable trust owned by the survivor. Because these two trusts are held under different ownership types, the insurance coverage may be very different, even if the beneficiaries have not changed.
Avoid Medicaid and nursing home liens by settling up an Irrevocable Trust and waiting 60 months to apply for Medicaid.
WHAT IS MEDICAID..........
Medicaid is a Federal medical bills assistance program that pays medical bills for eligible, needy persons. It is administered by each state. All payments are made directly to the providers of medical and other health care services. The Medicaid-eligible person does not pay the health care provider for services. The only exception is a patient in a Medicaid-approved nursing facility who may be required to contribute part of his/her income toward the cost of care. Medicaid is handled in NJ by the County Board of Social Services, which is the Welfare Office.
Medicaid typically has a lien on assets you own.
A federal court has ruled that assets held in irrevocable trusts should not be factored into determinations of Medicaid benefit eligibility in a major victory seniors and others faced with difficult financial and healthcare issues.
Irrevocable trusts with limited power of appointment have long been a common estate-planning tool.
Kenneth A. Vercammen is an Edison, Middlesex County, NJ trial attorney who has published125 articles in national and New Jersey publications on business and litigation topics. He often lectures to trial lawyers of the American Bar Association, New Jersey State Bar Association and Middlesex County Bar Association.
He is a highly regarded lecturer on litigation issues for the American Bar Association, ICLE, New Jersey State Bar Association and Middlesex County Bar Association. His articles have been published by New Jersey Law Journal, ABA Law Practice Management Magazine, and New Jersey Lawyer. He is the Editor in Chief of the New Jersey Municipal Court Law Review. Mr. Vercammen is a recipient of the NJSBA- YLD Service to the Bar Award.
He has served as a Special Acting Prosecutor in nine different cities and towns in New Jersey and also successfully handled over One thousand Municipal Court and Superior Court matters in the past 18 years.
In his private practice, he has devoted a substantial portion of his professional time to the preparation and trial of litigated matters. He has appeared in Courts throughout New Jersey several times each week on Criminal personal injury matters, Municipal Court trials, and contested Probate hearings. He serves as the Editor of the popular legal website www.njlaws.com
KENNETH VERCAMMEN & ASSOCIATES, PC
ATTORNEY AT LAW
2053 Woodbridge Ave.
Edison, NJ 08817