Because each state has the right to create their own laws under the 10th amendment, trust laws change from state to state—within reason. Making sure your estate plan is compliant with your new state's laws will save your family from haggling with probate courts if something isn't quite right.
A trust is typically administered in the state where the Trustor last resides. Under the circumstances where someone has created a trust in one state and subsequently moved to another, the court will typically look to the laws of the former state with respect to the validity and interpretation of the trust document.
The two basic trust structures are revocable and irrevocable. The biggest difference is that revocable trusts can be changed after they are created, while irrevocable trusts typically cannot. (There are a few exceptions, though, as state laws can vary considerably. 1)
As long as there are sufficient connections to the state, you can set up a trust in any state you like. “Some states have modified their laws to make them more favorable for trusts than others,” says Nate Rothbauer, managing director of wealth strategy for Ascent Private Capital Management of U.S. Bank.
There are 7 states that are generally considered the best in which to establish your trust: Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee and Wyoming.
With a trust, there is no automatic judicial review. While this speeds up the process for beneficiaries, it also increases the risk of mismanagement. Trustees may not always act in the best interests of beneficiaries, and without court oversight, beneficiaries must take legal action if they suspect wrongdoing.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
Once you die, your living trust becomes irrevocable, which means that your wishes are now set in stone. The person you named to be the successor trustee now steps up to take an inventory of the trust assets and eventually hand over property to the beneficiaries named in the trust.
For example, some states will look to the residency of the grantor or settlor at the time that the trust was created to determine whether the trust is a resident trust. Other states will look to the location of the fiduciary and administration of the trust to determine residency.
A trust is prohibited from being created for an illegal purpose or one that is contrary to public policy. A common impermissible purpose is a trust created to defraud creditors. In this type of scheme, a settlor will transfer property to a trust for the purpose of hiding it from creditors.
Yes. You will have to go through the same steps you did in opening up your original account. They are really not much different from opening up any other bank account. The new bank will no doubt want a copy of the trust and for the trustees to sign signature cards.
Factors to consider in determining the governing law include the place of the trust's creation, the location of the trust property, and the domicile of the settlor, the trustee, and the beneficiaries.
If your new home state has certain and specific requirements, your durable power of attorney may need to be recorded at the registry of deeds or filed with local government. Even if your durable power of attorney is legally valid in your new home state, there may be practical issues that arise with its continued use.
An irrevocable trust is a legal arrangement where the person who creates it (grantor) cannot alter or revoke the trust once it's established, except under very limited circumstances and with the consent of the beneficiaries.
Your Assets Might Not Be Protected: Another crucial point to note is that not all trusts offer protection from creditors. For instance, in revocable trusts, the assets are not protected from creditors as the grantor retains control of the assets. Potential Tax Burdens: Finally, trusts can carry potential tax burdens.
There is no minimum
You can create a trust with any amount of assets, as long as they have some value and can be transferred to the trust. However, just because you can doesn't necessarily mean you should. Trusts can be complicated.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
Parents and other family members who want to pass on assets during their lifetimes may be tempted to gift the assets. Although setting up an irrevocable trust lacks the simplicity of giving a gift, it may be a better way to preserve assets for the future.
Disadvantages of Trust Funds
Costs: Setting up and maintaining a trust can be expensive. Loss of Control: Some trusts mean giving up control over your assets. Time and Compliance: Maintaining a trust requires time and adhering to legal requirements. Tax Implications: Trusts can sometimes face higher income tax rates.
One of the benefits of a trust is that assets placed in a trust can avoid going through state probate courts and therefore avoid one level of "estate taxes" assessed as probate fees. Another benefit of using trusts can be to avoid estate taxes by making use of the annual gift tax exemption (currently $14,000 per year).
Who can void a trust? Under California Probate Code §17200, a trustee or beneficiary of a trust may petition the court to determine the existence of the trust. This means that any potential, current, or previous beneficiary can file a petition to void a trust, as can a trustee or co-trustee.
Rigidity: Family trusts are often inflexible, making it difficult to alter the terms once they are established. This rigidity can be problematic if family circumstances change, such as in cases of divorce, remarriage or changes in financial status.
The two most effective alternatives are (i) to title assets as “Joint Tenants with Rights of Survivorship” and (ii) designating beneficiaries on financial accounts. In many cases, particularly between spouses, an entire estate can be transferred to the other just by utilizing these two methods.