Wills and Living Trusts

Legal Nuggets- Wills and Living Trusts

Many people contact me about setting-up a Living Trust, instead of a “Last Will and Testament”. I generally recommend the use of a Will, not a Living Trust, but there are exceptions to every rule.

One of the big differences between a Trust and a Will is that before a trust is effective the property has to be actually transferred to it. If you died before you actually signed a deed transferring your home to the trust, then the property would go into your estate. However, there may be restrictions on such transfers in your mortgage on the house. Also, the transfer of the property to the trust would in some circumstances constitute a taxable event, or as a gift that invokes the requirement to file a gift tax return with the IRS and/or your state taxing authority.

If you use a Will, then no deed is required to make the Will effective in controlling the disposition of your property after your death. You can change your Will as often as you please and however you like, prior to your death. But the amendment of your Living Trust could require that you deed real estate out of the trust or to the “Amended Trust.”

Many people simply want to insure that certain assets transfer to their spouse upon their death in the least expensive and simplest manner possible. In many such cases the solution is to title the property or account “jointly, with right of survivorship,” not create a Living Trust. Nonetheless, there are some cases that are appropriate for Living Trusts. It is best, therefore, to consult your tax adviser and your legal adviser before you make a decision on how best to proceed with your plans for how you want your property to be distributed upon your death.

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