Do I Need a Trust for Estate Planning in Alabama?

Usually, when it comes to estate planning, the term trust doesn't come to mind. Most people tend to equate trusts with rich kids and those who've accumulated a significant amount of wealth throughout their lives.

 However, forming a trust in your estate plan is both a realistic and often necessary addition. This is especially true when you have specific assets or property that you want to pass on to particular heirs.

 In this article, we're going to cover everything you need to know about trusts in Alabama estate law.

 Keep reading to learn more.

What Exactly Is a Trust?

A trust is most commonly defined as a "legal fiduciary arrangement" that allows you to set up certain assets to be managed and held by a third party. The third party is usually referred to as a Trustee. Whoever you appoint as your trustee becomes responsible for ensuring that your estate is handled accordingly in what's been outlined in your trust.

 Contrary to popular belief, you don't have to be "rich" to form a trust. Trusts come in all estate sizes, and they come with quite a few benefits, including:

 ●      Reducing or eliminating estate taxes and gift taxes

●      Privacy

●      Asset protection

●      Enabling the beneficiaries to avoid having to deal with the probate court so they can receive their assets quickly

●      Providing better control for future wealth by establishing asset distribution conditions

 Of course, the most critical purpose behind incorporating a trust in your estate planning is to ensure that your assets are correctly handled—from the moment you pass away. Trusts are also used to manage any estate tax consequences that may affect your estate, and they can be used in some cases to protect your assets and property while still enabling you to qualify for Medicaid during your remaining years.

 An even more common and important purpose for setting up a trust is when you have young children or disabled dependents that you want to help with their financial care and long-term planning.

 It's also important to note that there are several types of trusts. They each vary and have their own purpose, which means before deciding on a trust you'll need to assess your financial needs and goals.

 Here are some of the different types you can choose from and their purposes:

 ●      Living trusts: A living trust —"sometimes called an inter vivos trust"—  is formed while you're still alive. It designates your chosen trustee, who will be responsible for managing the assets for your beneficiaries after you've passed.

●      Revocable living trusts: A revocable living trust is also formed while you're still alive. It can be altered or revoked while you're still around as well. Its primary purpose is to help your beneficiaries avoid probate. However, while you're still living, it won't offer 100% asset protection. Any assets included in your revocable living trust will still be available to creditors. However, but it may be a challenge for them to gain access.

 ●      Irrevocable living trusts: An irrevocable trust cannot be changed or revoked once the trust has been established. Once you've put assets in a trust, you surrender your legal right/ title to them. These trusts are sometimes used to protect assets and wealth from potential creditors or plan to deal with any applicable estate taxes.

 ●      Joint Trusts: Joint trusts are established for or by two people—usually a married couple. While both people are still living, they may maintain control over the assets they've included in their joint trust. They can also make changes at any time, and after one partner has passed, the surviving partner is named the trustee.

 ●      Testamentary trusts: A testamentary trust—also referred to as a "trust under will"— is created within a written will. It goes into effect along with the will once you've passed away. The written will typically include instructions for how the trust should be established and handled, which means that the trust technically isn't created until the will goes into effect. They also don't offer as much privacy as other trusts.

Revocable Vs. Irrevocable Trusts

It's necessary to reiterate that you can make changes to a revocable trust at any time during your life—as long as you're of sound mind and fully aware of what you're doing.

However, an irrevocable trust cannot be changed once it has become a legal instrument in effect. Once an irrevocable trust becomes active, you no longer have the same legal rights to the assets you've listed in its documents.

This is usually something that intimidates people. However, an irrevocable trust can be very beneficial under certain circumstances. They're especially popular among doctors and similar professionals that are always at risk for lawsuits. Should something happen, the assets owned by their trust may be protected from court judgments, liens, and creditors. Be sure to discuss your option with your will and trust attorneys to find out what will work best for you.

Do I Really Need a Trust?

Trusts aren't always the right avenue for everyone as they primarily benefit people in specific financial situations. So, if you're wondering whether or not you fall into the "specific financial situation" of needing a trust, here are the criteria you'd need to meet to reap the benefits of having one:

●      You own one or more homes and/or properties, especially if any of them are out of state

 ●      You have valuable assets that you wish to keep private

 ●      You want to help your beneficiaries avoid the probate after you have passed

 ●      You have a taxable estate (or estate assets out of state)

 ●      You wish to set up rules for the inheritances you're providing. For example, awarding dollar amounts for certain milestones or life events such as marriage, college graduation, etc.

 If one or more of the criteria above applies to you, then it's a good idea to look into forming a trust. Make to discuss your options with your Alabama estate and trust attorneys.

What Happens if I Don't Have a Trust in Alabama?

As we mentioned above, a trust isn't necessarily a requirement for everyone—but it is a good idea to meet the standard criteria.

 Suppose you pass away without a trust in the state of Alabama. In that case, all of your assets will automatically pass through your will. If you don't have a will at the time of your passing, then your assets will be passed through the Alabama intestate succession laws.

 The intestate succession laws essentially aim to pass your assets onto your closest living relatives, beginning with your spouse, children, parents, and then siblings, all in a pre-arranged order.

 Not having a trust also means that at the time of your death, any assets you've been "keeping to yourself" or want to keep private may become a matter of public record. Everything will likely have to pass through probate—which could take months.

 There will also be no control over how and when your assets are distributed among your beneficiaries.

 When you have a correctly set up trust, you can rest assured that your assets will be managed for the rest of your life and long after you've passed. More importantly, should you become mentally incapacitated, everything that's already in the trust will be taken care of, which eliminates or at least reduces the need for a power of attorney (POA).

 Lastly, the state of Alabama doesn't govern by the entirety of the Uniform Probate Code (UPC). Therefore, the state's laws surrounding asset distribution are much more complex.

 If you have a trust in place, both you and your beneficiaries may be able to avoid the state's complex laws and procedures. This may allow your assets to be distributed without government involvement. This can also save you a pretty penny on legal fees and associated court costs. 

If I Have a Trust, Do I Need a Will in Alabama?

The short answer is YES—you always need a will!

 Not only does a will handle all of the assets you include and appoint a guardian for your children if necessary, but it also acts as a backup plan for anything you forgot to include in your trust.

 For example, if you buy a home out of state and don't get the chance to add it to your trust before you pass, that property will still have to pass through your will. Therefore, it'll still be transferred to those you named as your beneficiaries.

 The bottom line: A trust does not, under any circumstances, replace the need for a last will and testament.

How Do I Form a Trust in Alabama?

Keep in mind that the purpose of a trust, in general, is to hold and protect assets and property. To form your trust, you'll need to do the following things:

 ●      Name the trust (and include the date it was written)

●      Name the trustee and beneficiaries

●      Include specific assets, such as physical properties and possessions, retirement accounts, brokerage accounts, business interest, stocks, bonds, etc.

●      Follow specific statutory requirements to make sure the trust is correctly set up and effective

●      Fund the trust, as in move the assets into its trustee's possession

 Depending on the type of trust you're thinking about forming, an attorney is usually necessary because there are several steps and many potential pitfalls. When it comes to any kind of estate planning in Huntsville, AL, it's always a good idea to consult with a wills and trusts attorney to ensure you're making the proper steps.

 Contact us today to speak with Sarah S. Shepard, a Huntsville estate planning attorney, about Alabama estate law and forming the right trust for your special needs and circumstances.