Avoiding Financial Disaster With A Living Trust

Using a little foresight, let's say, you've written a will to distribute your assets to your children after your death and now you're feeling pretty secure.13 min read

by E-Distributors Corporation

YOUR MONEY MATTERS

Using a little foresight, let's say, you've written a will to distribute your assets to your children after your death and now you're feeling pretty secure that you've safeguarded your children's inheritance. But this may be a false peace or mind. You may be leaving for your children months, even years, of agony in probate court, whopping attorney's fees, hassles with court officials and emotional anxiety of waiting for their inheritances. Surprisingly, there's a simple solution to this problem and a growing number of people are taking advantage of it.

REVOCABLE LIVING TRUST

Like many Americans, Jane learned the value of a revocable living trust first-hand, but paid a heavy price for it. When her father died four years ago, he left his business, family residence, a vacation home in Arizona and other assets to her. Fortunately, he had left a will and at first it seemed everything would go smoothly. But the problems started cropping up almost immediately. Although Jane, an accountant by profession, was named the executor and sole beneficiary of the estate, she had to hire an attorney to probate the will. She was fairly familiar with her father's financial affairs but, when it came to probate, there was very little she could do to expedite the process. It seemed like the court and attorneys were getting involved in every decision. Finally, the probate was over more than two years later but took a heavy financial and emotional toll on Jane. The once-thriving business was pretty much ruined.

After this experience, it did not take much to persuade Jane and her husband to set up a revocable living trust. All of their assets were transferred to the trust, with both of them acting as trustees. Because the trust is revocable, they can change its terms, or even cancel it at any time. When one of them dies, the surviving spouse will continue to act as trustee and control and manage their assets. In the event of incapacity or incompetence, the living trust will allow them to avoid lengthy and costly guardianship and conservatorship court proceedings. As Jane put it, "I want everything to be as easy as possible for my kids if something happened to me. I wouldn't want them to go through what I did with my father's estate."

FLEXIBILITY

The beauty of a revocable living trust is its flexibility. In setting up the trust, you transfer legal ownership of the assets to the trust, but you name yourself as trustee of the trust. Thus, although you've relinquished the nominal ownership of the assets, you continue to be the beneficial owner; you can manage, sell, mortgage or give away your assets as you please and the trust won't interfere. If at some point in time you wish to change terms of the trust, including designation of beneficiaries, or even revoke it in entirety, you can do so.

ADVANTAGES OVER WILL

Many estate planners swear by living trusts; their advantages over wills are many. The problem with a will is that it must be proved valid in probate court. To probate a will, you'll definitely need to hire an attorney and attorney's fees can run into thousands of dollars. There may be executor's commissions and other court costs.

California's probate fees -- set by law -- are about average among states. For an estate of $500,000 (by no means a small or uncommon estate where home prices start around $200,000), the cost of probate in terms of attorney's fees and executor's commissions would range around $22,300. This is a big chunk out of your children's inheritance.