Most families create a Revocable Living Trust to avoid the cost and time delays associated with the court supervised probate process. A Revocable Living Trust can help families settle estates easier, as Trusts can be more challenging for a disgruntled family member to challenge than a standard Last Will and Testament.
Simply put, it’s a legally binding document that a person can write to state what happens to their assets while they’re still alive and after their death. The writer is called the grantor and the person who carries out his/her wishes as stated in the document is the trustee. The writer may act as trustee while still living. It’s called a “revocable” trust because the writer can change or even cancel the trust if the writer still has the mental capability to do so.
The trustee acts as the trust manager. The trust is usually written to allow the writer to use assets in the trust during his/her lifetime. But if the writer becomes incapacitated, the trustee can pay bills and make other financial decisions. This aspect of a Revocable Living Trust can prevent problems should the writer experience an unexpected hospital stay, for example.
Once the writer passes away, the trustee (or, the writer’s beneficiary, if the writer served as trustee) manages the writer’s assets. These tasks could include settling any bills and claims, paying taxes and ensuring the assets have been distributed to beneficiaries. The trustee still must abide by the writer’s wishes as outlined in the trust document.
Without a Revocable Living Trust, the court will decide how any probate property is distributed. The process can take years to complete and can costs thousands of dollars.
A Revocable Living Trust skips probate by keeping the assets in the trust as opposed to the writer’s name, allowing the trustee to distribute assets after the writer passes away without the need to get the courts involved.
Assets held in trust are not exempt from creditors. Since Colorado law allows creditors one year to file their claims, some trustees want to wait the entire time to ensure all debts have been paid. To avoid this wait, some use a probate estate along with trust administration to hasten the claims process. It’s not an “either/or” situation.
Attorneys can advise how to protect assets such as a home owned by a husband and wife, to prevent creditors from seizing property to pay debt.
Usually, the Revocable Living Trust is not taxed during the writer’s life. Once the writer passes away or cancels the trust, the trustee files an annual fiduciary income tax return. Beneficiaries must pay taxes on trust assets they receive. The wording of a trust and effective estate planning strategies can help lower the amount of taxes paid on the estate.
The complexities of Colorado Revocable Living Trusts, estate planning, probate and asset management understandably overwhelm most people. Contact us today to learn how we can help you make your estate plan as simple and effective as possible.