How to Protect Your Legacy and Your Money
While COVID prompted many to get their estate planning done, it’s estimated that nearly two-thirds of Americans still don’t have a Will in place.
But even those with a Will may be surprised to hear that their children are likely still going to have to deal with a public court process, attorney fees, and a lot of hassle
Why?
Because a Will does not avoid probate - that’s what a living trust is for.
This is the biggest point of confusion for most of my clients during our initial meeting. They’ve always thought that the Will was used to avoid the court process, but that’s simply not the case. Your Will provides instructions to the court and can certainly help move the process along. But if you want to avoid the process altogether, then you need a living trust in place.
What’s a living trust?
A living trust is a trust document created by you while you are living (some attorneys also refer to this as an inter vivos trust, but I don’t speak Latin so I’ll stick to the English translation).
A living trust can be as simple or complex as you’d like, but the general idea is to clearly map out your intentions and do so in a way that all your children or beneficiaries are protected.
For example, if you are naming young children (or grandchildren) in the trust document, then you can specify whether money should be distributed outright to them or whether you’d prefer it continue to be held in trust for their benefit. By making these types of adjustments, you can better protect their money from creditors, bankruptcy, lawsuits, divorce, etc.
But don’t I lose control of my assets placed in trust?
No, a properly structured revocable trust allows you to retain all the powers you currently have over your property. From a day to day perspective you won’t notice a difference between owning your home in your names as trustees of your trust compared to you owning it in your name individually. But, upon your death or incapacity, then you’ll see the trust kick into action to make sure your wishes are protected
Please note: irrevocable trusts, or trusts created for nursing home protection, should not be confused with a revocable trust. They are two very different things. For purposes of this article, we are talking strictly about REvocable trusts, or trusts you can change at any point in time.
What about from a tax perspective? What if I want to sell my property?
Once again, with a properly structured revocable trust, there is no difference from an income tax standpoint. You do not need to file a different tax return and the revocable trust can use your social security number as your trust’s tax ID number so there’s no additional hassle with a revocable trust.
If and when you decide to sell your primary residence held in your revocable trust, you’ll still get the tax exemption (250k for an individual, 500k for a married couple) on the capital gain on the sale of the home. Everything flows to your 1040 the same way it would as if you didn’t have a trust.
But the best part is, even though there’s no difference from an income tax standpoint, if you live in Massachusetts then you can also use a trust to protect your estate from estate taxes.
Need help with your Estate Planning?
If you would like to review or update your estate plan, then give me a call at 781 202 6368 (MA), 603 836 4166 (NH), email jlento@perennialtrust.com, or click here to schedule your free personal consultation.
I’m always happy to help!
Joseph M. Lento, J.D.
Your Local Estate Planning Attorney
www.PerennialEstatePlanning.com
Massachusetts Office:
477 Main Street
Stoneham, MA 02180
New Hampshire Office:
91 Middle Street
Manchester, NH 03101
