Estate planning made easy: How to Create a living trust in Kentucky

Many resources are available for estate planning, and the living trust is one of them. In Kentucky, with a living trust, you can manage and protect assets, reduce property taxes, and leave assets to loved ones without being in the lengthy and expensive probate process. But it has no advantages until you provide property and assets to a living trust. Read how to fund living trusts while alive and after your death.

What is a living trust?

Simply put, a "living" trust—also known as an "inter vivos" trust—is established while the grantor is still alive. After your death, the listed assets in the trust will be transferred to the beneficiaries you specify in your living trust. You might also use a will, but wills must be executed through the probate process according to the legal procedure. It controls how your assets are distributed to your beneficiaries.

A revocable living trust is a popular component of estate planning. These trusts can be revoked or changed at any point in time. Being the "trustee," the trust and its trust property remain under your control as long as you are alive. After your passing, you will appoint a "successor trustee" in your trust agreement to manage the trust (and distribute your assets). If you set up a shared living trust, which spouses frequently do, your successor trustee would take over when both spouses pass away.

In contrast, irrevocable trusts cannot be changed or canceled once established. An irrevocable trust is an effective option for achieving certain goals, such as lowering your taxes, but it might require the dismissal of your ownership and management of trust assets.

Who is eligible to set up a Kentucky living trust?

A person who is 18 or older and has a sound mind, known as the settlor, can establish a living trust in Kentucky. The settlor selects the assets to be included in the trust. He also appoints a trustee to oversee them. Anyone may serve as a trustee, but it is a tough job if you are creating your own trust. In that case, you may choose a successor trustee to take on the responsibilities after your passing. As a trustee, you oversee the assets for your lifetime benefit. The successor trustee will transfer all the assets to the beneficiaries following the conditions of the trust after the settlor's passing. A revocable trust can be revoked/changed during the settlor's lifetime. When a living trust is signed, it becomes irrevocable and unchangeable.

Types of living trusts:

Revocable Trusts

You retain ownership of the assets and access them when creating a revocable trust. You may avoid the probate because the money is no longer a part of your estate. The assets are still yours, so taxes still need to be paid on them. You still have a chance of losing them in court, and estate taxes still apply.

This kind of trust is quite flexible and may be adapted to your needs, such as deferring a beneficiary's distribution until they reach a specific age or shielding assets from your spouse's new partner if they outlive you.

A revocable trust benefits grantors who do not have significant tax concerns but want to retain control over their assets.

This kind of trust's primary goal is to avoid probate, making transferring assets to designated beneficiaries easier. An irrevocable trust, however, is primarily used to protect assets.

Irrevocable Trusts

You'll lose control over the assets and don't have to pay taxes after creating an irrevocable trust. This helps many grantors by lowering their taxable income. It is because the assets are no longer included in their net worth. If you are sued, the money is better protected, and when you pass away, the trust's assets are not subject to estate tax.

Because money in a revocable trust meant to be bequeathed as part of an estate is susceptible to nursing home costs, some people turn to this type of trust to prevent assets from being confiscated as payment for their long-term nursing care.

A grantor must not transfer assets into an irrevocable trust merely to shield them from liability to long-term care facility costs only to find themselves unable to access the funds since the assets are no longer their own.

Why should I set up a living trust in Kentucky?

Create a living trust and transfer your possessions to your loved ones, saving them time and money after your passing. Property left in a will (as opposed to a living trust) may be held in probate court for months or even years, resulting in high probate fees, court, and attorney fees.

In contrast, assets left in a trust can frequently be given to your beneficiaries immediately without the need for legal counsel. So, setting up a living trust in Kentucky is important to avoid probate and transfer ownership of assets and certain property through a simplified process.

Unfortunately, Kentucky is not one of the states that have wholly embraced the Uniform Probate Code, a model law that simplifies the probate process. For tiny estates, Kentucky does provide a streamlined probate procedure. If the estate is subject to probate and the estate's value is $30,000 or less, the surviving spouse or children may ask the court to use this shortcut.

It is a fact that not all of your possessions are subject to probate. Anyone might apply for this streamlined procedure if they paid "preferred claims," which are debts of the estate that are prioritized, such as burial costs and taxes. The Kentucky term for this quick cut is "dispensing with administration."

You can avoid creating living trusts if simplified probate is offered as an option for your estate.

What are the costs of setting up a Kentucky living trust?

The cost of hiring a lawyer to establish a living trust in Kentucky is the biggest expense; of course, this will depend on how expensive your attorney is. In general, you can anticipate spending several thousand dollars. Use an online program, which can cost nothing to a few hundred dollars, to save money. However, this is not suggested for complex estates or anyone uncomfortable with a legal trust document.

The fees related to transferring assets, such as county recording fees, transfer taxes, and deed preparation fees, will be the additional costs.

How to initiate a living trust in Kentucky

Since the laws are the same in every state in the U.S., creating a living trust is primarily the same wherever you live. The fundamental six steps for establishing a living trust in Kentucky are as follows:

1. Determine what belongs in the trust

You might want to protect your real estate and business interests with a living trust. However, you could simply include all your assets if you want to. Some assets, such as pensions, 401(k) plans, and IRAs, cannot be added to your trust. Bank and brokerage accounts, life insurance policies, and others can also be added. The most important thing is to add the names of your beneficiaries and set up your accounts to be payable or transferred on death.

2. Select the living trust type

Revocable trusts are preferable to irrevocable ones since they allow you to remove assets or dissolve the entire trust if necessary. If you're married, a joint trust might be what you want, but if you have separate assets and minor children from prior relationships, two single trusts might be what you want.

3. Select a trustee

Someone who will oversee the trust is known as a trustee. Revocable trusts allow you to name the trustee on your own, or, in the case of a joint trust, you and your spouse will decide that. If you choose for yourself, you must also select a successor trustee if you pass away.

4. Draft a trust agreement

An estate attorney will guarantee that your trust is adequately created with a legal document such as the trust agreement. However, if you prioritize saving money, you can choose an online program and set the terms of the trust.

5. Sign the trust document and authorize it by a notary public

It might not be a valid trust if it isn't formally notarized by a notary public accredited by the state of Kentucky. So, without their authorization, you can't create trust in Kentucky.

6. Submit your assets to the trust

Deeds and titles can be given to the trust to accomplish this. Items that can't be titled, such as jewelry or antiques, just add them to the list in the trust declaration. Even though you can complete the paperwork yourself, using a lawyer or financial counselor guarantees that it is done correctly.

Do I still require a will if I set up a Kentucky living trust?

You will indeed still require a will. This may be confusing—isn't the purpose of a living trust to do away with the requirement for a will? Yes, it is, albeit it may never be put to use. However, you should still create a will for the below-given reasons.

• Hiring a guardian for minor children

  You cannot select a guardian for your minor children through a trust. If you have little children, you should make a will that names the guardian just for this reason.

• Keeping track of any assets you have not yet transferred to your trust

  People frequently create trusts but fail to formally transfer ownership of assets to the trust (for instance, they never get around to updating the deed on their home). Or, after creating their trust, people acquire or inherit property and forget or are unaware that they should assume ownership as the trustee of their trust. In either case, the assets won't be allocated following the trust's rules. You need a will as a backup to specify how property not in the trust should be divided.

  If you don't make a will, Kentucky state law will determine which of your closest relatives will inherit any property that isn't transferred via your living trust or another means (such as joint tenancy).

Estate taxes and living trusts in Kentucky

Assets are not protected from estate and inheritance taxes by a living trust. Kentucky does not require you to pay taxes on inheritance or assets left to spouses, minor children, grandkids, parents, or siblings. Only $1,000 gifts to extended family members, such as nieces and nephews, are free from state inheritance tax. Bequests to anyone else are only exempt up to $500.

A tax is imposed on estates that currently exceed the $5 million federal estate tax exemption. A QTIP trust, sometimes called an AB or marital trust, is a customized trust for married couples that transfers assets to your surviving spouse without triggering estate taxes.

A revocable living trust does not cover assets from Medicaid spending or creditors. It is better to consult an estate planning attorney, and review trust laws before protecting assets through an estate plan.