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