By: Janice Dantes
Lately, I have been receiving many inquiries about living trusts. A living trust is like eating vegetables: everyone knows it’s good for you, but few people know why. Here are some common questions about trusts:
“What is the difference between a will and a trust?” A will is a document that is governed by probate law while a trust is a document that is governed by contract law. Therefore, these documents are enforced differently. When you die with a will, your will needs to be filed in probate court in order to properly distribute your assets. It becomes a public document. Many people like trusts because assets in a trust can be distributed outside of court privately without anyone knowing what is in the trust and how the assets are divided. Trusts are a great tool for people who wish to keep particular assets or individuals private, disinherit a family member, or create uneven distributions among you children.
“If I have a trust, do I still need a will?” I highly recommend creating a pourover will even if you have a trust. A pourover will would pour any assets left in your estate into your trust. Perhaps you forgot that you accrued retirement benefits from your first job at McDonald’s when you were 16 or you never changed your beneficiaries on one of your mutual funds and your beneficiaries are all deceased. The pourover will would allow those forgotten assets to be transferred into your trust. Be sure when creating your trust and pourover will that the trust is created prior to your will. You cannot pour assets into a trust that was not yet created. Therefore, if you already have a will before you created your trust, be sure that is updated after you create your trust.
“What is the difference between a revocable living trust and an irrevocable living trust?” It boils down to one word: control. A revocable living trust creates a tremendous amount of flexibility by allowing the person who created the trust (“the trustee”) to change the trust and move assets in and out of the trust at any time. An irrevocable living trust cannot be changed. I often see irrevocable living trusts with a couple creating a trust together. The couple’s trust becomes irrevocable after one spouse dies to prevent the Anna-Nicole Smith scenario. For those not familiar with Anna-Nicole Smith, the more common scenario in our culture would be as follows: Wife and Husband are married 35 years and have three adult children and many beautiful grandchildren; Wife dies; husband is lonely and decides to visit family in the Philippines; 25 year old Filipina woman sees his sexy U.S. passport; Husband marries 25 year old who is at least a decade younger than his youngest child; Husband wants to make sure his new wife is taken care of and leaves his entire estate to 25 year old when he dies. Who needs the lottery, right?
“I don’t want to leave anything to my lazy husband, but I don’t want to get divorced because he is going to get half of everything. Is there anything I can do?” Even if you cut your spouse out of your will, a spouse is entitled to his or her spousal share of your estate, which is one third of your estate in Illinois. All I will say is remember this formula: 1/3 x 0 = 0.
Thank you for reading. Until we meet again, love one another.