First, we will review the value of living trusts in general.
Many people assume that a last will is the best choice when they are planning their estates. They believe that trusts are only useful for those who are very wealthy. However, this is not entirely true. While there are trusts that are utilized to meet the objectives of wealthy individuals, there are other types of trusts that are appropriate for people of relatively ordinary means. One of these is the revocable living trust.
When you have a revocable living trust, you can plan for the possibility of incapacity late in your life.
If you fail to plan and become incapacitated, your estate could be subject to a conservatorship/living probate proceeding – known in some states as a guardianship. In California, conservatorship proceedings are public proceedings in which the court determines that you no longer have the capacity to handle your own finances. The court then names a conservator to manage your estate as that conservator sees fit, which may differ from the way you would have wanted your estate managed.
With a living trust, you name a successor trustee in the trust agreement, and if you were to become incapacitated, the successor trustee would be empowered to administer the trust. The successor trustee would be required to manage your estate pursuant to the guidelines you set forth in your trust agreement.
There is also the matter of probate avoidance. Probate is the legal process of estate administration. If you use a last will to direct the transfer of your personally held property, the will must be admitted to probate. The estate must be probated before the heirs receive their inheritances.
This is a time-consuming process, and it can also be expensive.
You can avoid probate and the drawbacks that go along with it if you use a revocable living trust to facilitate future asset transfers.
Now that we have provided some background, we can discuss what happens to a living trust when the first spouse passes away. The answer will depend on the way that the trust was constructed.
If it is a shared revocable living trust, the spouses would typically act as co-trustees and co-beneficiaries while they are both alive and well. When one spouse dies, the surviving spouse is frequently designated as the sole remaining beneficiary and is generally named as the surviving trustee, then upon the death of the surviving spouse, property passes to the named heirs.
A shared revocable living trust may be a good option if you and your spouse own most of your valuable property together. Your spouse would control the shared property if you predecease your spouse.
Revocable living trusts can also be set up for divorce protection, so that upon the death of the first spouse, the surviving spouse acts with a co-trustee who oversees the deceased spouse’s part of the community property and the deceased spouse’s separate property. This helps to ensure that the surviving spouse is taken care of during his or her lifetime, and if he or she remarries it will assure that the deceased spouse’s share will remain intact for his or her heirs instead of the heirs of the new spouse.
When it comes to personally held property that has been conveyed into the trust, each party could name beneficiaries to inherit these assets. You may choose to have personal property pass to heirs upon your death, or you may designate the personal property to pass upon the death of the surviving spouse.
It is also possible for each party to create his or her own living trust. This may be a good idea if there is very little shared property.
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If you would like to learn more about living trusts and estate planning, we regularly offer free living trust seminars. To reserve your seat to one of our free seminars, follow this link: Free Seminars and Workshops.