Living or revocable trusts are effective estate planning tools that can avoid the hassle and cost of probate and ease the transition of assets after the death of a grantor. Clients often think that because their trust contains some, if not all, of their assets, that they only need a living trust to direct distribution on the grantor’s death, but that is not true. Assets in a living trust will generally pass to the named beneficiaries just days or a few weeks after a grantor’s death, but a will is still needed and filed with the probate court. The purpose of a pour-over will is to direct transfer of the grantor’s other assets and possibly those tangible personal items acquired after creation of the trust. A grantor may inherit or purchase an asset that they forget to transfer into their trust and the pour-over will deals with these items.
IRA and other retirement accounts often don’t go into a trust to order to preserve the payable-on-death tax benefits. Many people opt to leave their cars or a small checking account out of their trust. Your attorney will be able to help you decide which assets should go into the trust.
A lessor know reason for having a will involves claims against the estate. Under probate you can limit the time period when creditors can file a claim. In South Carolina that time is usually 8 months. Without probate barring creditors, creditors may come after assets for years. Assets in a living trust are not necessarily safe from creditors just because the estate is probated.
A third reason for having a will is to be able to name a guardian for minor children, an incompetent adult child or spouse with diminished capacity. These are things you cannot do in a revocable trust.
While in most cases it will cost more to create a trust and a pour-over will than just a simple will, trustee fees are typically lower than those charged by personal representatives for assets probated through a will. In South Carolina a Personal Representative can charge 5% of the probate estate, which only includes real property if the land is sold as part of administration of the estate. Trustees fees are typically 1-2% of the total assets, but depend on the size and complexity of the estate. Often family members who serve as trustees do not charge fees, only seek reimbursement for actual costs, including hiring professionals to assist and advise them as needed. Family members or friends serving as personal representatives are not required to charge fees. Trustees and personal representatives who do charge fees often must report the monies paid to the IRS as earned income.
Another benefit of a living trust is that each named beneficiary adds $250,000 to the total FDIC protection available to the account for a maximum of $1,250,000. If you plan to have more than five beneficiaries check with your attorney because there are added requirements such as each beneficiaries must having an equal interest in the trust assets.
Disclaimer: Information contained in this column is meant to be of general information on frequently asked questions concerning disability, elder law, estate planning and probate law, and does not contain specific legal advice to a client. No attorney-client relationship is created by reading this column.