Tell me about trusts...

ctbride08

in what situations are they valuable?

all of my bank accounts and property is jointly owned w/ A and its my intent that she recieve everything if i passed away - so, i wouldn't need one, right?

cookiemonster03

i *think* as long as that is in your will, the trust isn't needed...

Two*True

A trust prevents A from having to go through probate court should you die.  Here's some simple answers I found that convinced me to go ahead and do the trust now. 

 

What is the difference between a trust and a will?
Will: The primary difference is that the provisions of a will can be carried out only by a court order - a lengthy and expensive process. When your estate is probated, your heir will have to file a separate income tax return for the estate, as well as disclose private financial information for public record.

Trust: A trust gives the trustee the legal authority to distribute assets immediately to the beneficiaries based on the terms of the trust. No court is involved. No public notice of death is required as it is with a will. All that is required is a death certificate and a trust document that describes how things are to be distributed through the trust. Because a trust bypasses the court system, or probate, there are no fees, and there is no public record of the value of your estate, protecting your privacy.

Q: What benefits and cost savings does the revocable living trust offer to beneficiaries?

A: OK, let's say you and your wife or life partner own a home together as joint-tenants with right of survivorship. Let's say that one of you then dies and the survivor ends up the sole owner of this house. What if you have kids and you want to then pass this house down to your children? And your question is should you do it via a will or should you do it via a trust?

Let's say we're in the state of California. Let's say that this house is worth $200,000. And let's say that it had 100 percent financing and the parent owed $200,000 on the house. That sole surviving parent then dies and the will says that that property is to go to the kids. Well, in the state of California, probate is based on the fair market value of the house, as it is in all states, and the mandatory statutory fees in the state of California are $10,300, even though there is not one penny of equity in this house. So, for the kids to inherit this house via a will, it is going to cost them $10,300. And if they don't have the money to pay the lawyer -- because that money is for the executor and the lawyer -- the house can be sold to pay the legal fees.

Now, if that parent had set up a revocable living trust while he or she was alive, if he or she took the steps to transfer title from his or her name and into the title of the trust held for his or her benefit while they were alive and for the children's benefit after they had died, that house would then pass down free of probate and with no probate costs -- and it would immediately happen.

And in the state of California, you need to know that probate can go from six months to two years, with statutory fees and probate costs on top of that. That's the difference. And in states where the fees are not set by statute, the lawyers are free to charge whatever they can get -- which often results in even higher fees.

 

Even so, there are people who don't recommend having a revocable living trust. What's wrong with their thinking?

A:Today, most mortgages require two incomes to be able to pay the mortgage. Many people today have 100 percent financing and many people are now seeing increases in their payments because they're dealing with adjustable-rate mortgages. And let's say you just bought a house, and let's say you then get a call that your spouse/life partner was in a serious car accident and they are totally incapacitated. They didn't die, but they cannot work anymore, they don't even recognize you anymore. They're alive, but they are no longer generating an income.

A will, in this situation, will not help you at all because they're not dead; a life insurance policy will not help you at all in this situation because they're not dead.

And you need to then sell the property. Can you sell a home that you own with joint-tenancy with right of survivorship in that situation? No. And the reason you cannot is because the person you own it with is incapacitated. When you go to sell the property, it takes two signatures to be able to sell it if you own it in both names. So, you're then going to have to go and have your spouse/life-partner declared incompetent, become appointed by the court as their conservator -- that's the case here in California and it's $10,000 to do that -- and good luck from that point on.

If you simply had a living revocable trust that had an incapacity clause in it, it totally takes that out of the equation.

Joint-tenancy with right of survivorship doesn't help that; a will doesn't help that; most financial powers-of-attorney don't help that because they become null and void the day there's an incapacity unless things are set up correctly.

 

Two*True

My quotes above are mostly from Suze Orman articles I've bookmarked.

ctbride08

very good to know - thanks.

cookiemonster03

excellent!