Recently I reviewed and updated my trust. I learned again how important it is to get organized and stay that way. So many situations change in our life requiring that we adjust and keep up to date. Many years ago I witnessed a family with several financial needs, but when their husband and father died they couldn’t get any assets for two years while the probate court was appraising and declaring who would ultimately receive these assets. I watched this family struggle for a long time before the small business the father owned could be sold and some assets became available. If he had set up a living trust before he died, nothing would have delayed any part of the operation of the business. I watched the value of this business go from $500,000 down to a probated amount after two years of court nonsense of $42,000. A living trust could have prevented all of this.
Here is why a trust is so important, as outlined to me by my attorney:
- Upon your death, a trust lets your heirs skip probate court and all the costs of an attorney and appraisals, not to mention the time it will take to settle your estate without a trust (up to 2 years before assets are distributed).
- All your financial affairs are kept private.
- The trust spells out who your beneficiaries are and when they can receive money and assets. For minor children this is a must.
- With a trust, you can name guardians for your minor children that a judge will not have to rule upon in court if both you and your spouse die at the same time — whomever you have named can take immediate custody of your children and have all legal rights to care for them.
- A trust includes a “pour-over will” that allows you to include assets that you forgot to specifically name in the trust.
- A trust can provide a power of attorney in case you become incapacitated and need someone else to manage your affairs.
- A trust can provide a medical directive, giving someone you have named authority to make decisions about your health care.
- If you have a child that is handicapped, a trust can spell out the resources you want used to take care of his/her needs. (Keep in mind there are two types of trusts: a revocable trust which is changeable during your lifetime, and an irrevocable trust, which cannot be changed. If you have a special needs child and need to lock down assets to manage their care, then be sure to set up an irrevocable trust.)
A living trust works like a quarterback on a football team. You appoint a trustee, someone who will direct all the affairs of the trust assets. Usually you will be that trustee while you are living (you can name a successor trustee to take your place upon death; this could be your spouse, a child, or a trusted friend). The terms of the trust allow you to distribute 100 percent of your assets at death and there the trust ends, or it can continue on as a “living trust” and only distribute the earnings the assets accrue over time. The terms of the trust can be anything you wish, so give some thought to what you want. One example is a lady who never married and had no children and loved her cats. In her trust, she provided for their lifetime care after she passed. Another example is the Kennedy family — the living trust Joseph Kennedy set up before his death is still in existence today and provides college education to all his family members.
The disadvantage of a living trust is the expense of setting one up. They can cost more than $1,000 when you use an attorney. However, if your assets are simple and you want to do-it-yourself, then I recommend using www.easylegalplanning.com They do a great job and will set up a calendar to remind you of changes in the law that might suggest an amendment to your trust to keep it compliant with your state laws. The cost of this is about $500. Just remember the state you live in has its own rules. You can learn them, with some help, and set up a trust with guardianships, power of attorney and medical directives.
Once you have set up your trust, be sure to review it annually and make adjustments as needed. Remember, a trust is to make an event that you know will happen — your death — easier for the loved ones you leave behind, protected from legal and court wranglings, and from unfair taxation. Nobody gets out of this life alive and for sure, we can’t take anything with us so get organized now and save yourself and loved ones a lot of grief.