Does A Trust Always Have Assets In It?
In California, it is allowable to create what’s called an un-funded trust, but it does no good. The trust literally only exists to handle the disposition and management of assets. So we would only do an unfunded trust if we knew there were assets that were going to be coming in and we wanted to have the trust in place when we receive them. So, we would do this in the case of possibly life insurance proceeds or something of that nature, but generally, trusts always are funded and always have assets.
What Are The Components That Constitute An Effective Trust?
In theory, a trust is a very simple document. It just needs to state the person’s intent to, in this case, hold assets for the benefit of themselves and successor beneficiaries and name someone to manage those in their absence. But in an estate plan, we have more documents than that because life is more than just your assets, but the trust itself is not a terribly complicated concept.
Are The Assets Held In A Trust Protected From Creditors?
Absolutely not. An irrevocable trust gets no asset protection for the grantors of the trust, i.e., the people who created the trust. It does create asset protection for their beneficiaries. So in the same way that we might hold assets in trust for a beneficiary to keep those assets as their separate property, we also could hold their assets in a trust to protect those beneficiaries from losing their assets to creditors.
The reasoning behind this is, if I have my own assets, it would seem a bit unfair that I would be able to transfer those assets into a trust and keep my creditors from getting anything. But if somebody else wants to give me assets and they want to restrict it, that doesn’t seem as unfair. If I’m receiving the assets as a gift or as an inheritance, then they can be restricted and protected from creditors, but I can’t do that with my own.
Why Are Trusts Recommended As A Basic Strategy For Effective Estate Planning?
Trusts are the simplest and most effective method for estate planning. In estate planning, the priority should be achieving the goals that you want to achieve with your assets, and the second thing should be doing that in a way that is as simple and economical as possible, and a trust does both of those things. It can be very flexible in how the assets are left and who manages them, and it does that in a very efficient manner.
Is A Will Just As Effective As A Trust In Estate Planning?
A will is just as good for the first reason we want to do a trust, which is to determine who gets your assets and when. A will can do all of the things that a trust can. The downside is that the will is not efficient. Wills are very inefficient and require a court’s approval before they can be made effective, and that’s this process of probate, which is very time-consuming and expensive. If people have assets that would be subject to probate, then I would almost always advise a trust. Those assets would be anything in excess of $150,000 gross value. So if somebody owns a house in California, they should have a trust.
How Does A Trust Avoid Probate?
A trust avoids probate simply because the person who died wasn’t named as the owner of the property. The trust, this entity, is like a corporation which owns the property, and the corporation goes on even if the CEO dies. Since the trust owns the property, the successor named as the successor trustee has the full authority to follow the instructions in the trust and transfer that property, and so they don’t need to go to court to get permission, and that’s how a trust avoids probate.
What Actually Happens To The Trust When Someone Dies?
The successor trustee has to go through the administration process, and this is essentially a three-step process. The first step in the process is to get control over all of the assets, to have the successor trustee substituted as the current trustee of the trust on all of the assets and to create a balance sheet showing the value of all assets, so they have to have them all appraised or somehow get a current value on all of the assets. The second step is to be sure all creditors are paid and any assets that are going to be sold would be sold at that time. Notices would be sent out to various government agencies, beneficiaries and family members of the deceased. Then the final step is to give an accounting to all of the beneficiaries and make distributions.
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