Trusts

What happens to your assets when you die depends upon how those assets are titled while you’re alive. A trust tells the world who will inherit your assets and will be in charge of those assets upon your death.

Irrevocable and Revocable Trust Attorney in Maine

The best way to think of a Trust is as a Will substitute. A Trust accomplishes most of the same things a Will does:

  • A Trust tells the world who will inherit whatever is in your Trust when you die (e.g., your spouse, kids, charity).
  • A Trust tells the world who will be in charge of the assets in your Trust when you die (the “Trustee”).

 

Unlike a Will, which only has significance when you die, a Trust exists the minute you form it and place items in it (e.g., house, bank accounts). As a result, your Successor Trustee does not have to “probate” your estate when you die.

Will

You name your Personal Representative in your Will, and the court appoints them after you die to settle your estate per the terms of your Will.

Advantages

Lower cost than trust preparation
Simple and inexpensive in probate-friendly states

Trust

You name your Trustee in your Trust to settle your estate after you die. The court does not get involved, unless there is a dispute.

Advantages

Avoids probate if assets are properly titled
Privacy
Trustee is immediately authorized to act upon your death

What is Probate? Should it be Avoided?

Probably the number one reason Trusts are widely used is to avoid probate. Probate is the process of having your will accepted by the Probate Court in the county where you reside when you die.

In states like Maine, probate is a fast, easy, and inexpensive process. Most Personal Representatives (the person you name to be in charge of your Estate) are appointed within one to two weeks of application to the court. The fees paid to court are based on the value of your assets, and are very reasonable. Some states, like New Hampshire, still have a formal probate process, and the costs associated are far more expensive and time-consuming. States like New York, Connecticut, and California are notorious for having difficult probate systems. The probate courts in Massachusetts, which fairly recently adopted probate laws similar to Maine’s, are so overwhelmed they can be slow to process paperwork. For many, the guiding question as to whether you should avoid probate is, in which state do I plan to be a resident when I die?

Own property in multiple states?

A probate process must happen in every state that you own real estate, which can get expensive. Check out these examples >>

Will Example: If you are a resident of Maine, but own property in Vermont and Massachusetts which is in your name, your Personal Representative will need to open probate in three states to transfer all your property when you pass.

Trust Example: If these additional properties are all in a Trust, there would be no probate in the additional states.

Even more reasons to avoid probate:

  • Contentious family who you know will argue when you pass.
  • Children that are estranged from you.
  • Privacy concerns (your Will becomes available to the public online on the probate court website when you die through the probate process).

There are No Estate Tax Savings to Avoid Probate

Many people mistakenly believe that a Trust will mean that they will avoid estate taxes when they die.  However, whether your assets are in a Trust or in a Will, they are all included in your net taxable estate. The Maine exemption for 2022 is $6.01 million ($11.2 million for federal, which is doubled if you’re married).

Clients interested in a Trust must have “constant vigilance” to maintain the Trust by making sure to title current and new assets in the name of their Trust. Many clients believe all their assets are in their Trust, yet nothing in fact is in the Trust. People sell houses, buy new ones, and then forget to put the new home in the Trust. They open new accounts at the bank and forget about the Trust again. This means anything left outside the Trust will go through probate. So, in many cases, all that effort to avoid probate by forming the Trust is wasted.

A Good Rule of Thumb

If a person says:

“My mom had a Trust, it worked great and things went quite smoothly.” This person is probably a good candidate for a Trust. They are familiar with the language and how a Trust operates.

If a person says:

“Trusts confuse me. I really don’t understand them. I like to keep things simple.” This person is not a good candidate for a Trust.

Your Next Step

Now that you've decided you want a trust, the next question is what kind of trust?

Revocable Trusts

Revocable Trusts are used solely to avoid probate for the reasons outlined above. Revocable Trusts can be changed at any time. 

If your assets are in a Revocable Trust you can borrow money and do all the same things you would otherwise. Your Social Security Number is the Trust tax ID number. Your mortgage interest is still deductible and you may keep your homestead tax exemption if you put your primary residence in a Revocable Trust. Because it’s considered to be in your full control, there is no asset protection to a Revocable Trust. Creditors will be able to attach assets in a Revocable Trust.

Placing your assets in a Revocable Trust does not provide asset protection from MaineCare or liens from other creditors.

Irrevocable Trusts

If you’re interested in a Trust to protect your assets from nursing home or Maine Care (Medicaid) liens, then you would be interested in an Irrevocable Trust. Unlike Revocable Trusts, Irrevocable Trusts are rigid and constraining. To ensure ultimate protection, any asset placed in such a Trust will then be completely out of your control. You will not be the Trustee, you will not be able to mortgage the assets, and you will not be able to sell the assets without your Trustee’s permission.

What kind of assets work best in an Irrevocable Trust? Are you a candidate for an Irrevocable Trust?

Assets that work best when placed in an Irrevocable Trust are assets that you own outright and never intend to sell, such as a family cottage or sometimes a home.

Things to Remember about Irrevocable Trusts

If you have a large mortgage on your home, then you are not ready for an Irrevocable Trust.

If you have so few cash reserves that you would need access to a home equity line of credit to fix the roof or a boiler, then you are not a candidate for an Irrevocable Trust.

If you want to remain in your home as you age and may need to use a reverse mortgage to finance your care, you are not a candidate for an Irrevocable Trust.

If your family does not get along or does not communicate well, you are not a good candidate for an Irrevocable Trust.

Preparing for your Meeting with Attorney Bedell

Estate Planning Questionnaire

Reading to begin thinking about your estate plan? Download our estate planning questionnaire and start providing the details.

Determining Your Net Worth Questionnaire

Calculate your net worth by documenting all your assets, including insurance, retirement plans, personal property, and more.

Preparing a Will & Probate Issues

Our helpful, complimentary guide explores the common questions to consider when you begin the estate planning process.

Advanced Health Care Directive/Living Will

An advance directive allows you to plan in advance for the time when you may not be able to communicate your health care choices. Learn about what you should include.

Trusts: Are they Right for Me?

What happens to your assets when you die depends upon how those assets are titled while you are alive. Read more about revocable and irrevocable trusts.

Have Questions About Your Estate Plan?

Looking for help with planning your estate? Need advice about trusts? Have questions about Maine’s real estate transfer laws? We're here to help!

Let's talk about your revocable and irrevocable trust questions.

Contact us today to schedule a consultation with Attorney Kathryn Bedell.

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