Do You Really Need a Living Trust (Step 1 -Part I)

November 6, 2007 | Leave a Comment

Based on a lot of e-mail messages I have been receiving recently, this is the post that a lot of readers have been looking forward to…some honest commentary on how vital it is for one to own a “Revocable Living Trust” (RLT).  Public interest in RLT’s has been running high for the last several years.  This interest has been fueled a great deal by some attorneys who convince every client that they absolutely have to own one.  They create this concept of RLT’s as documents that can do accomplish everything for you short of slicing vegetables.  This isn’t the case because every client is different and RLT’s simply are not for everyone.

Bldjg01107081First, we should start with a quick sketch of how RLT’s work.  When you sign an RLT you essentially create a legal entity that is separate and apart from yourself, and it is a document that directs how and where the trust assets are distributed when you die, just like a will does.  You then transfer ownership of your assets (bank accounts, investments, real estate, etc.) into the name of your RLT.  So when you die and the Probate Court wants to know what you owned when you passed away so that it can go through the probate process, the answer is that, technically, you owned nothing…your RLT owned eveything.  Therefore, no probate. 

Here is a message well worth repeating:  Planning with living trusts does not end when the trust documents are signed (which is the case with wills).  Please notice that a vital step in this process is actually putting assets into your trust, which essentially means re-titling certain assets so that they are legally owned by your trust.  Otherwise, you’ll end up going through probate and defeating the primary purpose of having a trust.  In other words, there are two very important steps to this process.  Skipping step #2 (funding the trust) is, hands down, the most common mistake made with living trusts…and it’s a big one!

Please note that it is extremely important to sign a “pour-over” will along with your trust.  It is a very short and simple will which simply says that upon your death, anything that is not already owned by your trust is poured over into your trust.  This ensures that all of your assets are distributed in accordance with the instructions in your trust.  Ideally, everything will already be owned by your trust when you die.  But just in case you forgot to re-title a particular asset or just didn’t get around to it, then the pour-over will finishes the job and gets that asset into your trust.  The considerable downside is that the asset now must go through the probate process, which is precisely what you were trying to avoid when you set up the trust in the first place!

Posted by James Ferrell | Filed Under James K. Ferrell, Living Trust, blog, trusts 

Should you include funeral instructions in your will?

November 5, 2007 | Leave a Comment

Planning for a funeral definitely seems like a morbid task.  But the truth of the matter is that the act of planning out your funeral, whether it’s done by you or someone else, is a task that has to be done eventually (in light of the fact that death is one of the two things in life that are guaranteed!).  So planning for their funeral is one of the things that many of my forward-thinking cilents do.  And inevitably the question of whether the funeral instructions should be included within the body of the will often comes up.As with almost all legal questions, the answer to this one is “yes, but…”.  I usually encourage my clients to go ahead and talk about their funeral plans in their wills, assuming they have strong feelings on that topic, but you need to go beyond that. 

The biggest problem with including the funeral instructions in the will is that when someone dies the will is often not even opened until sometime after the funeral.  You can imagine a family members awkwardness when they discover that the funeral instructions in the will do not match up with what actually happened at the funeral. 

My advice is this; go ahead and include your funeral plans in your will, but you need to verbally indicate your wishes to your family as well.  You can even give them a document, separate and apart from the will, which spells out all of the funeral plans for them.  Setting up your funeral plans with the funeral home of your choice ahead of time also makes sense.  In other words, you should not rely on your will as being the sole source of funeral plan information for your family.

I will also mention that making funeral plans ahead of time, as morbid as that process may be, is almost always deeply appreciated by loved ones.  Having funeral plans in place removes a challenging administrative burden from your family as they go through an emotionally difficult time.

Posted by James Ferrell | Filed Under James K. Ferrell, blog 

What exactly is a trust?

November 5, 2007 | Leave a Comment

Here in the Memphis and Northern Mississippi area many people come to my offices wanting to create a trust account for their childen or loved ones but initially have little knowledge of what a trust actually is.  A trust is a separate legal entity from yourself that you allow to hold onto an asset for you before the trust one day distributes to the people that you have elected to benefit from the trust. Think of it much like you would a safe that you place assets in to one day be opened up and the contents distributed to your designated beneficiaries.  

A basic trust always has these four components: 

  • The Grantor – This is the person who creates the trust.
  • The Beneficiary(s) – Person who receives the benefits (income and/or principal) of the trust. The grantor can also be the beneficiary.
  • The Assets – These are the items, properties or policies transferred into the trust.
  • The Trustee – This is the person who manages the assets of the trust and distributes proceeds according to the guidelines set forth in the trust. The grantor can also serve as the trustee while he/she is alive. A trust can established while you are still living (the legal term for this is inter vivos) or it can be established upon your death by specific instructions made in your will (this is called a testamentary trust).

 A revocable trust is a trust that can be changed or revoked during by the grantor during his lifetime.  An irrevocable trust is a trust that cannot be changed or revoked after they are created.

Posted by James Ferrell | Filed Under James K. Ferrell, blog, trusts 

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