We’ve moved! We didn’t go far and look forward to seeing you in our new space located at 1255 Crescent Green Drive, Suite 200, Cary, NC 27518

Before You Set Up a Trust in North Carolina, You Need to Know These 3 Critical Things

In the past, the creation of a living trust was limited to individuals who had built large estates and wanted to transfer the trust funds to their children and grandchildren. However, setting up living trusts has become commonplace in North Carolina as ordinary people have also found avenues to amass wealth, thanks to investments in stock markets and increased property value of homes. It’s critical to understand the legal nitty-gritty when you set up a trust in North Carolina to ensure the smooth and seamless distribution of properties to beneficiaries. 

An alternative to setting up a living trust is to write a will. But many people bypass that by establishing living trusts as wills are subject to probate—the legal process governing the transfer of property to beneficiaries. On the other hand, creating a living trust keeps your assets from going through probate.

In North Carolina, many people set up a revocable trust when doing estate planning. With such a trust, you have the freedom to modify or revoke it whenever you please. In such a case, you name yourself as the trustee to retain full control of the trust and its property while you’re alive. You’ll also name a successor trustee, who’ll manage your estate and distribute the property to the beneficiaries after you pass on. 

Types of Trusts in North Carolina

People create trusts for various legal reasons: asset protection, tax planning, education, contribution to charity, among others. However, one of the primary reasons for setting up a trust is to avoid probate. But because of the varying reasons for establishing trusts, there are many types of trusts. They include (but are not limited to) the following:

  • Asset protection trusts 
  • Charitable lead trusts
  • Annual exclusions gift trusts
  • Medicaid planning trusts
  • Credit shelter trusts
  • Education trusts
  • Gun or NFA trusts
  • Special needs trusts; and
  • Trusts for children

Three Things to Know When You Set Up a Trust in North Carolina

When establishing a living trust in North Carolina, there are some critical things you first need to understand to avoid any legal consequences. Having these points in mind also streamlines your estate planning, saving you time and money.

1. You Still Need a Will Even After You’ve Set Up a Trust

This sounds counterintuitive because the essence of creating a trust is to avoid writing a will and its consequent probate process. But the truth is, you’ll still need a will despite making a trust. The need for creating a will is because of one (or both) of the following reasons:

  1. Listing a guardian for your minor children – A trust doesn’t allow you to designate a guardian for your minor children. But you want your children to have a guardian in case you die before all of them attain 18 years. To do that, you’ll need to write a will. 
  2. Accounting for any property not listed in the trust – People commonly forget to transfer all properties in their estate when setting up a trust. A good example is when you buy or inherit property after you’ve already set up a trust and forget to include the property in the document. That means that the property won’t be distributed as part of the trust. A will offers a backup, outlining how assets that you didn’t include in the trust should be distributed. 

Otherwise, any property not listed in your trust will be inherited by your closest relatives, according to North Carolina law. 

2. Your Living Trust May or May Not Reduce Your Estate Tax

Suppose you’re wondering whether a living trust will reduce your estate tax. In that case, it depends on the worth of your estate. Most individuals need not worry about federal estate taxes as North Carolina only levies taxes on properties worth $12 million and over. 

If your estate is worth $12 million, or you and your partner have a combined estate of close to $24 million, you’ll need to set up a more complicated trust called an AB trust or Qualified Terminable Interests Property (QTIP) trust. Such a trust helps you reduce your federal tax obligations. 

3. Your Assets Listed in a Living Trust Are Subject to Claims by Creditors and Healthcare Costs

One of the common myths surrounding trusts is that they protect the grantor’s assets against creditors’ claims and healthcare costs. That couldn’t be further from the truth. 

Because a living trust is revocable—can be modified or canceled—the assets included in the trust can be used to pay creditors and settle any healthcare expenses. Additionally, the worth or income from the assets highlighted in a living trust can be counted to determine whether the grantor is qualified for Medicaid coverage

Typically, when the trust grantor dies, the assets held in the trust are generally open to cater to any estate administration costs, any debts or claims by creditors against the estate, and to pay estate taxes (if the assets are worth more than $12 million).

Partner With an Attorney to Create a Successful Living Trust in North Carolina

If you want to embark on creating a living trust for your estate plan, it would be best to partner with a lawyer. We have experienced estate planning attorneys who can help you establish a living trust, including choosing a knowledgeable trustee. Contact us today for a free consultation or to set up an appointment with one of our attorneys and begin writing a successful trust.

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

LinkedIn | State Bar Association | Avvo | Google