Boomers Look To Living Trusts For Estate Plans

As simple as it seems, growing older can get complicated. Second marriages, blended families, even the simple accrual of assets can leave you with an urgent need for clear estate planning.

Baby boomers are looking to living trusts as one way to simplify their financial matters.

Here is a simple guide to living trusts: what they do, their advantages and disadvantages, a few words on the important topic of ownership.

The basics

A living trust is a legal document spelling out the management and distribution of your assets while you are alive and after you die. The trustee is the person or entity you appoint in your living trust to manage your assets.

Upfront attorney’s fees usually range from $500 to $4,000 with three factors driving the cost: the size of the estate, the complexity of the distribution plan and the discussion time with the attorney. Tip: The more you know about living trusts when you walk into the attorney’s office, the less you’ll have to pay for the attorney’s time explaining it to you.

Even when you have a living trust, you still need what is commonly known as a “pour-over will.” It ensures that assets that should have been transferred into your living trust during your lifetime are “poured over” into your living trust at your death. It’s a good idea to review with your attorney which assets you are not transferring to your living trust during your lifetime and the reasons you are not making the transfer.

Properly executed, a living trust will promptly settle your debts and distribute your estate to your heirs. Probate is the court process that does essentially the same thing, but incurs attorney’s and executor’s fees that can take from 4 to 10 percent of your assets. Probate can also take a year or more to complete.

But before a living trust can avoid probate, three steps are required.

The first, of course, is signing the trust document. The second is transferring the ownership of the appropriate assets to the trustee. In some states you can be your own trustee; in others you need to name someone else or a bank or trust company.

The third step is to name the beneficiaries of your life insurance, retirement plans and IRAs. Because of income tax and death tax consequences, it may not always be smart to name your living trust as the beneficiary. This is a key matter to discuss with your attorney.

The benefits

Usually the older and wealthier you are, the more your family can benefit from a living trust. If you own real estate in several states, the trust may allow your successors to avoid a probate in each of those states.

Besides avoiding probate, a living trust may also provide more privacy to your family and loved ones. With probate, your will and all of your assets that are covered by your will become a public record. A living trust is a more private.

Another possible benefit of a living trust is that you may avoid a court proceeding to determine who’ll manage your assets if you become incapacitated.

Some disadvantages

A living trust is not for everyone. In some cases, probate may be avoided even without a living trust. Ask your attorney if you fall into this category.

The upfront attorney’s fees are generally higher for a living trust than for a will. Ask your attorney what the difference would be.

In general, you can do the same death-tax planning with a will as with a living trust.

If you refinance a property, there may be some extra work and expense in connection with the loan if your property is held in a living trust.

Joint tenancy

Finally, a word about holding title to your assets. A common belief is that joint tenancy, where two or more people hold title to a house or other asset, is an adequate way to avoid probate.

But while you are alive, joint tenancy can lead to unwanted complications. Let’s say your children become joint tenants on your house with you. If one of your children has a business that goes under, your child’s creditors may go after your child’s portion of the house while you are alive. If one of your children is at fault in a car accident where your child’s car insurance is not enough to cover the damage, the injured party may go after your child’s portion of the house while you are alive.

So, if you want to avoid probate and also avoid being responsible for your adult children’s debts and actions, you should talk to your attorney about setting up a living trust instead.