Attorney at Law

VALERIE KIRKENDALL

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REVOCABLE LIVING TRUSTS

What is a revocable living trust?

Revocable living trusts are often promoted as an effective alternative to probate for transferring property when you die. Even though Oregon’s probate system is among the simplest and least expensive in the nation, many citizens are attracted by the possibility of even quicker and easier asset transfers.

 

But revocable living trusts have some drawbacks. Here, to help you decide if a revocable living trust is right for you, are answers to some of the most frequently asked questions about these trusts.

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A revocable living trust is a legal device that can be used to manage your property during your lifetime and to distribute your property after your death.

 

A revocable living trust is established by a written agreement or declaration which appoints a “trustee” to administer the property transferred to the trust, and which gives detailed instructions on how the property is to be managed and eventually distributed. If you want your trust to substitute for a probate proceeding (court administration of property after death), you must give the trustee detailed instructions about how to handle these situations, and you should legally transfer substantially all of your property to the trustee. A revocable living trust agreement or declaration is usually longer and more complicated than a will, and transfer of assets to the trustee can be time-consuming and expensive. Any competent

adult can establish a revocable living trust.

Who can be the trustee?

In Oregon, any competent adult can be the trustee, including the person setting up the trust. An Oregon bank or trust company can also act as trustee.You can appoint more than one trustee, can delegate different duties to each trustee, and can

retain the power to remove the trustee and appoint a new one. Appointing a successor trustee is essential if you are the first trustee and the trust will carry on after you die or become incapacitated.

How is a revocable living trust established?

If a revocable living trust is appropriate for you, you will need a written agreement or declaration of trust, which sets out your plan for management and distribution of your assets. Then, you must legally transfer all trust assets to the trustee. Deeds, stock transfers, new bank accounts, and other legal documents may be necessary. Assets not formally transferred to the trustee will not be considered part of the trust and might still be subject to probate.

 

You must also have a will to ensure that any property not properly placed in your trust before death can be transferred to it after death.

 

At your death your will can transfer up to $50,000 of personal property and $90,000 in real property to your trust through an affidavit filed with the court. Your will can transfer assets of greater value to your trust through the probate process. You can also have life insurance and certain pension accounts paid directly to the trust.

 

Here is an example of how trust assets should be registered: “John Doe, Trustee Under the Marty Smith Trust Agreement Dated January 1, 1990.” The trustee should not hold trust assets individually, as “John Doe” without the additional information. The trustee must keep separate records for trust assets and might have to file separate income tax returns for the trust. If the trustee does not obey these rules, the trust may not avoid probate.

Probate and revocable living trusts

Probate is a legal process for transferring your property when you die. It is supervised by a court. Probate usually involves validation of your will, appointment of a personal representative, collection of your assets, notification of and payment to your

creditors, and transfer of your property to the beneficiaries under your will.

 

A revocable living trust avoids the probate process because you collect your assets and transfer them to the trustee before you die. The trustee then transfers your assets to your beneficiaries after your death. If you establish a trust but fail to transfer your assets to your trustee, you will not avoid probate.

 

If you die owning real estate outside Oregon, a court proceeding might be required in each state where real estate is located. A revocable living trust can avoid these extra court proceedings only if that property is transferred to your trust.

 

Sometimes it is not a good idea to avoid probate. For instance, in a probate proceeding, your personal representative has special powers to deal with your creditors and can force them to file claims with the court or lose their claims. The trustee of a revocable living trust now has similar, optional powers to deal with creditors; however, using these powers may require some additional expense and delay, as in probate.

 

Even if you want to avoid probate, there may be better ways to do it. Joint tenancy ownership of specific assets, with the right of survivorship, can be a cost effective way to avoid probate on the death of the first joint owner. There are several ways to pass bank accounts at death without probate, including joint accounts with right of survivorship, trust bank accounts, and so-called “payable on death” accounts. Most pension plans and life insurance policy proceeds pass under beneficiary designations that avoid probate without use of a revocable living trust. Depending on the nature and amount of property, one or more of

these nonprobate devices could be a less expensive way for you to avoid probate.

What is a conservatorship?

Conservatorship is the legal process for management of your property and providing for your financial needs when you become “incapacitated.” If a court determines you can no longer handle your financial affairs, a conservator is appointed. The

conservator must list your assets in the court file, manage your property under court supervision and file periodic accountings with the court.

 

If you transfer all of your assets to a revocable living trust and give your trustee detailed instructions on how to handle your assets if you become disabled, there should be no need for a conservatorship. Your written agreement or declaration can specifically authorize your trustee to rely on a letter from your physician as proof of your incapacity.

 

A conservator can establish, or fund, a revocable living trust if (1) the trust would be a more efficient way to administer the property of the incapacitated person and (2) use of the trust would be consistent with the person’s overall estate plan. A special court order is needed to do this, however.

Durable power of attorney

A durable power of attorney is a simple and inexpensive way to avoid conservatorship. This brief document appoints another person as your “attorney in fact,” to handle your assets. It is less detailed than a revocable living trust agreement, and it is less

expensive because it is so short and involves no transfers of assets.

 

However, durable powers of attorney frequently give no direction to your attorney in fact regarding your plans for investments, money management, or distribution. They generally contain no written restrictions on their use.

 

With a revocable living trust, it is possible not to transfer all assets to the trustee immediately, but specifically to authorize the attorney in fact to finish funding the trust if you become incapacitated. This approach will not avoid probate, however, if the trust funding is not completed before you die, because the power of attorney dies with you.

Does a revocable living trust avoid taxes?

By itself, a revocable living trust does not avoid income, estate or gift taxes. Provisions for saving estate and gift taxes can be included in a revocable living trust or in a will. Whether your assets are held in a trust or not, a federal estate tax return must be filed after you die, if your property exceeds $1,000,000 in value for the years 2002 and 2003. You should not set up a revocable living trust just to save taxes.

What does a revocable living trust cost?

The exact cost of a revocable living trust depends on how complicated your assets and your estate planning goals are, how many assets must be transferred to the trustee, and whether tax planning is needed. Before you direct an attorney to set up a trust for you, ask for estimates of how much it will cost, how much writing a will would cost, and how much probating your estate would cost.

 

If you do not plan to serve as your own trustee, you should consider any fees you might want to pay the trustee and whether those fees would replace fees that you are already paying to manage your assets.

 

A revocable living trust plan should include the trust document, the transfer of assets to the trust, a “pour over” will to add any other assets to the trust and a Durable power of attorney Does a revocable living trust avoid taxes? What does a revocable  iving trust cost? durable power of attorney. It also might include related legal documents, such as an advance directive regarding medical decisions and a certification of trust, which summarizes important trust terms and information.

Advantages of a revocable living trust

• Avoidance of probate – In particular, avoidance of expensive multiple probate proceedings when you own real estate in several different states.

• Avoidance of conservatorship – A revocable trust can avoid the additional cost of a conservatorship in the event of your incapacity.

• Efficient distribution – A revocable trust can provide a reduction of delays in distribution of your property after you die, although delays caused by filing an estate tax return cannot be avoided.

• Confidentiality – Generally the terms of your living trust are confidential with only your named beneficiaries and trustee having access to that information.

• Continuity – A trust can provide continuity of management of your property after your death orincapacity.

Disadvantages of a revocable living trust

• Expenses of planning — It is more complicated than a will to draft and asset transfers can take time and can result in additional costs.

• Expenses of administration — If you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). Setting up a revocable living trust will not eliminate the need for professional services of attorneys and accountants in the future.

• Inconvenience — Once the trust is established, you must be sure that trust books are maintained and that all assets continue to be registered to the trustee. Persons dealing with the trustee (such as banks and title insurance companies) may want to review the trust instrument to check on the trustee’s powers and duties.

• Unforeseen problems — Revocable living trusts can raise a variety of new problems regarding title insurance coverage, real estate in other countries, Subchapter S stock, certain pension distributions and many other issues. Only a skilled attorney familiar with estate planning can tell you whether, on the whole, a revocable living trust is right for you, your family, and your assets.