After the years you put into building your wealth, you want to pass it on to your heirs intact – and ideally without the delay of the courts. For Kentuckians, setting up a living trust makes a lot of sense, since probate can be a costly and lengthy process in the state. Whether you are just contemplating the idea or have already decided to create a living trust, this article will explain everything you want to know. If your estate is sizable or otherwise tricky, a financial advisor’s guidance is essential. SmartAsset’s free matching tool can help you find the right pro for your situation.
How to Create a Living Trust in Kentucky
Setting up a living trust is largely the same regardless of where you live in the U.S. Here are the basic six steps you’ll need to take:
1. Identify what should go into the trust. Some assets can’t, such as 401(k) plans, IRAs and pensions. Other things like bank and brokerage accounts and life insurance policies can but don’t need to, as long as you designate your beneficiaries and set up your accounts to be payable or transferable on death. Most likely, it’s real estate and business interests that you want to protect with a living trust. (But as long as you are setting up the trust, you may decide to put everything you can in the trust for simplicity’s sake.)
2. Choose the type of living trust. You probably want it to be revocable (as opposed to irrevocable), so that you can remove assets – or cancel the whole trust – in case you need to. If you’re married, you may want a joint trust, though if you have separate assets and children from previous relationships, you may want two single trusts.
3. Next, name your trustee, the person will manage the trust. With revocable trusts, it can be you, or in the case of a joint trust, you and your spouse can be co-trustees. If you choose yourself, you’ll also need to appoint a successor trustee for when you die.
4. Now create a trust agreement. Using an attorney will ensure your trust is set up correctly. But if doing this as cheaply is your priority, you can use an online program.
5. Then sign the trust document in front of a notary public.
6. Finally, transfer your property into the trust by putting deeds and titles in the name of the trust. (For things that can’t be titled, like jewelry or antiques, it’s enough to just list them in the trust declaration.) Again, using a lawyer or financial advisor ensures this is done correctly, though you can do the paperwork yourself.
What Is a Living Trust?
A living trust is like a will in that they are both legal documents that state where property is to go when the owner dies. The difference is that a living trust is also an entity that holds the property while the owner (also call the settlor in Kentucky) is alive. The primary aim of a living trust is to avoid probate, a court process that can take months and even years.
The trustee, then, is the person who manages the trust. As mentioned earlier, the trustee can be the settlor if it’s a revocable trust, or it can be a grown child, brother, friend or lawyer — anyone you trust. When the settlor dies, it’s the trustee’s job to distribute assets as the settlor instructed. (In the case that the settlor was his own trustee, the successor trustee would step in.)
As alluded to earlier, there are revocable and irrevocable living trusts. The former is commonly preferred for its flexibility. Also, the settlor does not give up ownership rights. On the other hand, settlors of irrevocable trusts do give up control and ownership – and as a result, are off the hook for taxes.
How Much Does It Cost to Create a Living Trust in Kentucky?
The largest cost of setting up a living trust in Kentucky is the lawyer’s fee, and this, of course, depends on how expensive your lawyer is. You can generally expect to spend several thousand dollars. To save money, you could use an online program, which can range from free to a few hundred dollars. This, though, is not advisable for complicated estates or really anyone unfamiliar with legal documents.
The other expenses will be the fees associated with transferring assets, including county recording fees, transfer taxes and deed preparation fees.
Why Get a Living Trust in Kentucky?
The primary reason for creating a living trust in Kentucky – or anywhere – is to avoid probate, the court process for authenticating and administering a will. This process is considered complex and lengthy in Kentucky, since the state has not adopted the Uniform Probate Code. Generally speaking, probate can take six months to a year in Kentucky, if there are no challenges or complicating factors like multiple creditors making claims to the estate. If there is litigation, probate can take years.
In addition to taking a long time – all the while bank accounts may be frozen and estate bills are due – probate can be costly. There are attorney fees plus probate court costs and filing fees. (The fees and time can be even more if there is property in other states.)
Providing for someone with special needs is another reason for getting a revocable living trust. In this case, the trustee would manage the trust and follow your instructions for supporting your beneficiary. Also, a living trust is a good choice for people who want to postpone the distribution of assets until heirs reach a certain age. (With a will, assets are distributed once probate closes.)
Who Should Get a Living Trust in Kentucky?
Since Kentucky has not adopted the Uniform Probate Code, probate in the state is considered lengthy. So people who are concerned about the delay and costs of the court process should consider a living trust. (Perhaps your heirs will be unable to cover the bills related to your estate.)
That said, Kentucky does have a simplified process for small estates, which are those worth $25,000 or less. There’s also a simplified process especially for surviving spouses when the estate is worth $15,000 or less.
People who own property in other states may also want to set up a living trust. Additionally, as stated earlier, you may want to set up a living trust for an heir with special needs – or perhaps one who is likely to burn through their inheritance. Also, living trusts are a way for people to disinherit their children or leave more to some than others. (This is because they’re harder to contest than wills).
As for irrevocable trusts, these really only make sense for very wealthy people who are also trying to minimize taxes.
Living Trusts vs. Wills
It’s recommended that you get a will even if you have a living trust. That’s because you likely left something out of the trust. With a will, you can also leave instructions such as:
- Naming an executor (so that the court doesn’t appoint someone who is not your first choice)
- Forbidding your heirs from selling certain property
- Forgiving a loan made to a relative
- Stating your preference for the guardians of children who are minors
This chart shows what living trusts and wills can do:
|Living Trusts vs. Wills|
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes in Kentucky
A revocable living trust will also likely not affect your federal estate taxes, since the exemption is $11.4 million for individuals and $22.8 million for couples.
The Bottom Line
Kentucky has not adopted the Uniform Probate Code. So if you own property worth more than $25,000, a living trust will enable your beneficiaries to receive their inheritance more quickly than if they waited for probate to close. Living trusts do cost money, though, so you should weigh the benefits with the outlay of several thousand dollars. Also, some assets such as bank and brokerage accounts can avoid probate if you designate your beneficiaries. A living trust may especially make sense if you want to leave your estate to someone who has special needs.
Estate Planning Tips
- Don’t go it alone. A financial advisor can help you with tax planning and wealth transfers as well as investing assets to provide income. To find an advisor near you, use SmartAsset’s free pro matching tool. In about five minutes, it will recommend up to three suitable advisors, based on your financial situation.
- Designate your beneficiaries. As tedious as filling out the forms can be, it is well worth the trouble. Pensions, life insurance policies, retirement accounts and brokerage accounts can all be transferred without court interference if you designate your beneficiaries – and keep them updated.
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