Why setting up a living trust in Connecticut is a wise decision?
What is a living trust?
A living, or "inter vivos," trust is a legal structure that keeps all your property and valuables in one safe place. Whether you or another individual takes on the role of trustee, this person takes care of your living trust. Remember to name a successor trustee who will be in charge of getting the items of your trust to the right people.
As per trust laws, things that might be in a living trust are:
- Homes and Property.
- Accounts for investments and trading without a beneficiary.
- Accounts at banks.
- Unpaid debts.
- You can insure jewelry, furniture, cars, family heirlooms, and other expensive things with an insurance company.
- You can get policies on your life and annuities.
Other kinds of property don't belong in a living trust because they already don't go through estate court:
- Financial products with beneficiaries include IRA, 403 B, 401(k), HSA, suitable annuity, etc
- Anything you own with someone else, like your spouse or child (like a joint bank account),
Also, you can't choose a guardian for your minor kids through a living trust. You can only do that with a Will.
There are two types of living trusts - Revocable living trusts and Irrevocable living trusts.
A revocable living trust:
- You write a trust document to specify how you want the money in the trust to be spent during your life and how you want it to be shared after you die.
- It is revocable, which means that the person who set up the trust can change it or get rid of it at any point.
- You can be the grantor and the trustee of the trust as long as you are still living and able to handle the assets. (During your lifetime, you can also be the grantor, trustee, and recipient of a living trust.)
- Ensures that you have full power over your assets.
- Name a successor trustee who will operate the trust when the original trustee can't do it anymore.
- The grantor will report any income the trust makes on their personal 1040 Income Tax Return if the grantor is the trustee or co-trustee.
- In a revocable trust, the grantor legally still has control over the property and assets, so they are responsible for any taxes that come with it.
An irrevocable living trust:
- Irrevocable trusts, also known as asset protection trusts, primarily benefit their owners by avoiding probate and protecting their assets from future long-term care problems.
- You can't be a trustee, so you must choose someone else to do that job. It means you lose control of your assets and must depend on someone else to act as a trustee in your best interest.
- The goal is to transfer assets into the trust so that the five-year look-back time for Medicaid applications doesn't put them at risk.
- You can't cancel an irrevocable trust but still have some control over it. For example, you can change the beneficiaries or the manager.
- An irrevocable trust is independent, so it must pay taxes independently.
Who is a trustee?
The person or organization running the trust is called the trustee. That differs from a receiver or administrator, whose job is to settle the estate of a deceased person, whether or not a trust is involved. The thing that trustees, executors, and administrators all have in common is that they are fiduciaries. It means that they have been given other people's property and are officially responsible for taking care of it well.
Who is a beneficiary?
The settlor set up the trust to help a person or organization. A beneficiary is often a close cousin of the person who made the Will. Charities, friends of the settlor, and other people the settlor wants to help in some way are also joint recipients.
How do living trusts work in Connecticut?
A grantor sets up a Connecticut living trust. First, the grantor picks a manager to handle the trust's assets. A grantor can name himself the trustee but also needs someone to take over when he dies. The trustee takes care of the assets for the giver while he is still alive. When you set up a trust, you keep using your assets the same way you did before. You can still live in your house, drive your car, and spend cash. When you die, the trust gives your leftover assets to the people you chose as beneficiaries.
A revocable living trust in Connecticut can be changed or canceled while the trustor is still alive. When you die, the rules stay the same. A living trust that can't be altered once it is an "irrevocable trust."
One of the best things about a Connecticut living trust is that the trust assets go to your beneficiaries without going through a probate court process that proves a Will. The process is complicated since Connecticut doesn't use the Uniform Probate Code. Avoiding inheritance can save time and money since the process takes many months and costs the executor and attorney money. Living trusts are also much more complicated to dispute than Wills, which gives you more assurance that your intended actions will be carried out.
According to Connecticut's intestacy laws, your assets are given to your relatives if you don't have a Will or a revocable living trust towards your estate plan. You don't have any say in how your assets are divided among your relations.
In Connecticut, do I need a living trust?
Setting up a living trust to give your property to the people you love after you die could save them time, trouble, and money. If you leave property through a Will instead of a living trust, it could be stuck in estate court for months or even years, and it could cost a lot in court fees, probate fees, and lawyers' fees. On the other hand, the property you leave to your beneficiaries through a trust can be given to them immediately and often without any requirement for an agent.
Some states have implemented a model law termed the Uniform Probate Code, which makes the probate process more manageable.
Unfortunately, Connecticut is not one of these states. But Connecticut has made the probate process easier for "small" assets. This bankruptcy option is available if your estate is worth $40,000 or less and includes no real estate (except for real estate held in survivorship form). The probate process will be simple and affordable if your estate is eligible. As a result, you may be fine with creating a living trust just to avoid probate.
Who can use a living trust in Connecticut?
Since Connecticut law doesn't have a Uniform Probate Code, living trusts are a good investment for many people. Even though they are often seen as tools only for the rich, many people can use them no matter how much money they have.
Connecticut does not follow the Uniform Probate Code, so the probate process is easier for estates worth less than $20,000. If you are in this group, think twice before setting up living trusts for yourself and your family.
Some things need to be fixed with living trusts. For one thing, they are much more expensive to make than Wills and other popular tools for estate planning. You'll require the help of an estate planning attorney to draft a Connecticut living trust. Think about the fact that they have a long time frame for possible court challenges that could still make things hard for your family.
What is the best situation to draft a living trust in Connecticut
Here are some things to think about when choosing whether or not a revocable living trust is suitable for you.
If you are single
If you're not married and don't have kids, you might not need a living trust. You can make a Will that lists your beneficiaries and how you want your trust assets to be divided. A living trust may still be an excellent option if you have a lot of money or wish to avoid the probate court.
If you have a spouse
If you are married, you and your partner can make a shared living trust that can be changed. A husband and wife often use this kind of trust to handle property they own together, like the family home. If one partner dies, the other can stay in the house and take care of the property without going through a probate process.
If you have minor kids
Parents who have children need to have living trusts. It ensures that your kids will be cared for if something happens to you. So, if you have kids too young to care for themselves, you can name a guardian in your Will and a trustee in your living trust to handle their assets until they turn 18.
Couples in their second or later marriages
If this is your second or later marriage, set up a living trust to safeguard the assets you would like to pass on to the kids from a previous marriage. You can set up different trusts for your children and your partner. This can help ensure your children get the assets you want them to have and that your current husband doesn't get more than you want them to have.
Almost everyone benefits from having a live trust. But you shouldn't do it to avoid or reduce federal and state estate taxes since it doesn't work that way.
What money is required in Connecticut to set up a living trust?
Living trust is an effective estate planning tool but involves certain costs. The costs of setting up a living trust change from case to case. This estimate is mainly based on how complicated your estate planning needs are and how you choose to set up your living trust.
Lawyers are known to be expensive, and lawyers who help with estate planning are no different. If you go this way, you can pay around $1,000 when everything is said and done.
Online living trust services are much cheaper (around $400), but online estate planning may involve risks. Working with a lawyer who helps people plan their Wills is best.
How to set up a living trust in Connecticut
For Connecticut people to get their living trust up and running, they need to do six different things:
Choose between a single or group trust
Joint trusts work best for people who are married and want to combine their assets. On the other hand, a single trust will work if you are single or want to keep your assets separate from your partner's.
Look over your stuff and make a list of it
Try to list all the things you own that you want to keep safe. Only retirement accounts can be included since they have their heirs.
Choose a trustee
This person will look after your living trust and, by extension, your inheritance. You can name yourself a trustee if you want, but you should also choose someone else as a successor trustee to take over when you die. This person is like an estate manager when it comes to a trust.
Write out the papers for your trust
A trust document should be a written document. So, this must be done with the help of an estate planning lawyer or a program that lets you set up a trust online.
Notarize your trust document
A notary public should witness you signing your living trust document.
Fund your trust
Now is the time to officially put your land and assets into your trust. In this case, a lawyer can be beneficial.
If I create a living trust in Connecticut, do I still need a Will?
You must draft a Will being a Connecticut resident for one or both of the following reasons:
Choosing a guardian for a child under 18
You can't choose a guardian for your minor children through trust. You should name a guardian in your Will if you have young children.
Keeping track of the property you haven't given to your trust
People often set up a trust but must remember to move all the assets into it officially. People buy or receive property after setting up their trust but must remember to take possession as the trustee. In either case, the land will be kept from being given out as the trust says it should. As a backup, you should have a Will that says how assets not in the trust should be given away.
If you don't have a Will, Connecticut law says that any property that isn't transferred by your living trust or another way (like joint tenancy) will go to your closest family.
Can a living trust in Connecticut cut down on estate tax?
Most likely not. Most people don't have to consider federal estate taxes as they only apply to estates worth nearly $12 million for a single person or almost $24 million for married couples. However, Connecticut's state estate tax has a lower ceiling and a lower tax rate than the federal estate tax.
The federal estate tax level for 2022 is $12.06 million for single people and $24.12 million for married people. This cap goes up to $12.92 million for single people and $25.84 million for married people in 2023. Because of these limits, most owners won't have to pay this tax.
If you're concerned with estate taxes, you could lower or avoid them with a more complicated trust, like an AB trust, but you should talk to a lawyer first.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for advice on your specific situation.
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