If you have been considering estate planning to protect your money and your family, then a discussion of trusts and wills has likely occurred. In particular, the living trust probably has come up as a way of protecting your money and preventing family fighting. Family do fight over money. I’m sure you have heard plenty of stories.
The purpose of this article is to help determine if a living trust is right for you, and if so, what features you should be thinking about including in your living trust.
Who can Benefit from a Living Trust?
A living trust is an estate planning tool. The trust allows you to dictate how your assets are managed and spent during your life, your incapacity and death (and beyond the grave).
A living trust is not solely for wealthy families. While a lot a people think that it is only for the rich. The most simple living trust is helpful for…
Mary Lou, an elderly widow with two children living in town. Mary Lou has…
– A small 3/2 home without a mortgage; and
– $30,000 in savings.
Mary Lou could set up a simple revocable living trust along with a durable power of attorney and health care directives. This would make things much easier on Mary Lou’s two daughters if she needs help paying bills and managing her money as she ages.
When Mary Lou passes away, then the daughter do not have to go to probate court and wait to sell the house. Saving them hours of time. The house can be sold and the savings account can be split without going to an attorney to settle the estate.
The family can easily save $2,000 in upfront costs plus a considerable amount of time and stress. The attorney fee to set up the simple revocable living trust is less than the cost the settle an estate after someone passes away without a living trust.
Living Trusts Can Get Complicated
Not everyone has the same family situation. Multiple marriages happen. Adult children can have problems such as addiction issues, poor money management, special needs, and spouses with those problems too!
Not everyone has the same amount of money. The same type of assets (rental properties, stocks, annuities, and so forth). We don’t have a totally socialist government (yet).
Not everyone has the same health when they’re 67 years old.
Living trusts can be used to manage these people and money issues.
You can learn more about hiring the right attorney to set up a complicated estate in my book.
Items to Be Considered In a Living Trust
In many cases, a living trust functions exactly like how you manage your money now. You write checks on the trust account just like your personal account. You can determine who gets the account when you die. You pay the same income now without the trust, than with trust.
In other cases, the living trust might function differently. It depends on your goals
You create the living trust in an agreement, just like a contract.
You sign a contract creating the trust. The trust agreement or contract spells out your goals and plans, including:
- Who’s in charge and what he, she, or it can do
- Who gets what, when, and how
- Who can change the trust agreement’s terms along with when and how the terms can be changed
- Who pays taxes and when (for certain tax reduction techniques)
- Who can’t get the trust assets (e.g. creditors, estranged children, future spouses, and so forth)
The important things to consider when setting up a living trust are your goals.
Do you want to…
- Avoid a nursing home spend down of assets if you need nursing care
- Avoid “step-children” problem… Parent dies… most of the estate goes to the surviving spouse and not the biological children
- Prevent your share of assets from being given to a new spouse upon re-marriage after you pass away
- Protect children from “blowing it”
- Create a secure retirement fund for your children after you pass
- To ensure money is paid for your care if you get dementia
- Reduce income or estate taxes because you’re in a high-income tax bracket
- and so forth(there are a lot of things you can do with a living trust)
There are a lot of things you can do with a living trust. Look for an estate planning attorney that provides educational materials and presentations to help you determine your core planning goals.
If you would like an overview of what it is like working with an estate planning attorney, my book on hiring an estate planning attorney will give you an overview of the process of setting up a trust with an attorney.
What are the Financial Benefits of Creating a Living Trust?
The financial benefits of creating a trust depend on your goals. What planning goals to you want to put in your living trust? The following chart provides estimated minimum estate savings from future legal consequences of NOT planning.
Your Planning Goal |
Typical Cost |
| Name Person(s) in Charge instead of the State Law | $1,000 |
| Decides “who get what” instead of the State Law | $2,000 |
| Decides who gets certain personal items | $0, but causes emotional hurt in case of a fight |
| Prevent minors from receiving an inheritance at 18 | Lose Everything and your child’s well-being |
| Protects against minors from wasting money | Lose Everything |
| Prevent court-supervised guardianship of you | $10,000 |
| Prevent court-supervised guardianship of your children | $6,000 for each child |
| Prevent fighting over medical decisions for you | $8,000 |
| Protect loss of benefits for special needs family member | Lose Everything |
| Protect assets from spouse’s potential creditors | Lose Everything |
| Protect assets for kids from your spouse’s remarriage | Lose At least 1/3 of everything |
| Protect gift to children from ex-spouse | Lose Half of everything |
| Protect gift to children from any addictions or bankruptcy | Lose Everything |
| Protect gift to children from personal injury lawsuits | Lose Everything |
| Provides Personalized Instructions | Your children’s stress, confusion, and frustration |
| Avoid or reduce estate taxes (basic estate tax planning) | Losses starting at 20% of the total estate |
| Avoid probate | 3-5% of your estate, typically $6,000 |
| Avoid months (and even years) of court delays caused by probate | Your children’s stress, confusion, and frustration |
| Avoid making my personal affairs public | Your loss of personal financial privacy |
| Make sure I don’t become a burden to my children | Your children’s stress, confusion, and frustration |
| Make it easy on your children | Your children’s stress, confusion, and frustration |
| Avoid or reduce nursing home costs | $7,500 per month until you have nothing |
Is a Living Trust Right For Me versus a Will (or Nothing at All)?
A living trust will cost you more to set up than simply putting your wishes down on a will. If you were to set up a will and not a living trust, then your beneficiaries will bear the burden of managing your estate and transferring your money.
A living trust is right for you if you want to save costs and time for your beneficiaries.
The main instances where a living trust is not right for someone involve one or some of the following factors:
- You don’t have children or beneficiaries who are close to you
- Most of your money is in an IRA
- You are younger than 55 and your net worth isn’t over $100,000
- You don’t care if your kid’s inheritance is reduced… they’re getting a windfall!
Should You Use an Online Form to Setup a Living Trust?
Maybe I should re-phrase this title:
“Should You Use WebMD.com to Determine if You Have Cancer and Treat It?”
I’m not trying to be obnoxious or self-serving here. If I feel a lump, I’m not settling for what WebMD.com says, I’m getting a doctor’s opinion and I’m not resting on remedies I can find on the internet. This is my life.
Similarly, if I have saved all my life and had goals on how I want to be care for when I’m older and how I want to provide for my family when I’m gone, I would go to the right estate planning attorney to make sure that happened. This is all my savings and my family’s life.
Setting up a living trust is complicated. Most attorneys that do not set up trusts on a regular basis will go to estate planning attorney for their own planning.
How Much Does it Cost to Setup and Maintain a Living Trust?
The attorney’s fees involved when you setup a living trust depend on many factors.
Simple estates, like Mary Lou’s in the sample above, can cost $1,200 in some areas to set up. Not bad considering the savings of time and money.
More complicated estates for folks with under $5 million in total assets can vary from $2,500 to $7,000. If you look at the costs savings chart above, you can see that $7,000 isn’t bad compared to some of the problems that can be prevented with a living trust.
The most-expensive estate planning with multiple living trusts that I have encountered is a $75,000 fee paid in the early 1990s in New Jersey for an estate valued over $15 million.
Click to learn more about the factors affecting the cost of a living trust and estate planning.
Conclusion
Setting up a living trust involves some focus and understanding about the process. Your goals in planning dictate
Your goals in planning dictate how your living trust is set up.
Your goals in planning dictate your ultimate financial benefit realized when you become incapacitated or you pass away.
Your goals in planning will dictate the cost to setup your living trust.
If you think a living trust is right for you, then your next step is to find an attorney help you create a living trust and you can find detailed instructions in my book, How to Hire the Right Estate Planning Attorney at a Fair Price, found at Amazon.
If you require assistance in our service areas, then will benefit from attending our estate planning workshop.