8 Financial Facts to Know About How a Personal Trust Operates
When people talk about personal trusts and living trusts, it’s easy to get bogged down in the legal jargon. There are a few essential facts to understand about the ways in which a personal trust operates.
1. A personal living trust is a plan for your estate.
This plan manages your personal assets over the course of your life and then passes the estate to your predetermined beneficiaries after you die.
2. A living trust is a way of controlling and protecting your estate.
The law prevents anyone from signing your name except yourself. If you develop a disability, the only way your name can be signed is if a previously designated Financial Power of Attorney is used. Following your death, it’s illegal for anyone except an authorized Executor to sign your name.
When you die, your Financial Power of Attorney is immediately revoked according to law. This means that if you have any assets in your name following your death, a legal probate estate must be established in order for a judge to name an executor for your estate.
Even if you draw up a last will and testament, you won’t avoid probate. A will is a written document expressing your wishes for the appointed executor and the people who will receive your property following your death.
3. Probate is a court system division responsible for handling estates of people who have died.
Probate court also handles estates of people who cannot manage their own assets because they have acquired a mental or physical disability. Probate was conceptualized for the protection of an individual’s assets during their lifetime, along with the supervision and proper distribution of wealth following the death of that individual.
4. Probate is costly and inefficient, but a living trust helps avoid probate.
The system wasn’t designed to handle the affairs of every person who dies. If you haven’t made any other provisions, and you form a disability which renders you unable to conduct your own affairs, your assets will be controlled by the probate court. The court will give your family direction for your care.
If you have assets in your name when you die, and the value of those assets is larger than $100,000, the whole of your estate will then be subjected to the probate process. For probate to work, there must be a minimum of six months for the claims period. On average, the entire process takes eighteen or more months before it’s completed.
When you use a living trust, you avoid probate court. This cuts the wait time down to a matter of only a few weeks, rather than eighteen months.
5. A complete estate plan includes multiple official legal documents.
The following documents should be included in the estate plan:
- A Trust document
- A Last Will and Testament
- A Financial Power of Attorney
- A Health Care Power of Attorney
6. Trusts are not expensive.
As long as you hire a competent attorney, it doesn’t take a lot of time or money to set up a trust. The fee for a living trust is about the same as the fee to make a basic plan for your estate.
7. A trust protects you in the event that a disability occurs.
When a person suffers a disability, their assets are then given to the probate court. The probate court handles the assets and gives the individual’s family directions for the individual’s continued care. If you want your assets to remain in your control following a disability, you need to create a living trust before the disability occurs. A living trust will then be executed by whichever person you’ve named as the executor of your estate.
8. A trust also protects the wishes of the first spouse who dies.
When the first spouse dies, a trust is a way of preserving their wishes rather than seeing their estate go to probate court.