If you will, allow us to present the hypothetical case of Pete Moneywise, a married, 78-year-old father of three who wants to get his financial affairs in order before his passing.
Though he exists only in the confines of this article, his situation reflects what countless retirement-age people face as wills get drawn up and trusts created.
“I hate probate,” Pete tells us in a most exclusive interview. (What else did you expect? We created him.) “I went through it when my father died and my family spent the next year talking to lawyers, trying to get things squared away.”
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He shares how the probate process caused tension between his siblings. He also harbored frustration over one unanswerable question: “Why didn’t Dad create a living trust? It would’ve made things so much simpler.”
Credit Pete for following his own advice. His living trust is almost in place to help his children but now comes another vexing question: What if anything to leave out of it? He did some homework and identified five items. The list could serve you well as you consider the structure of your living trust.
Probate explained: Best not go there
Many folks don’t even know what the word “probate” means until it literally defines them.
This court-supervised process involves many steps and can create mounds of paperwork. It includes (but is not limited to) validating the will if there is one, naming an executor if there isn’t, paying off liabilities and then distributing the remaining assets.
Does it cost money in legal fees and take lots of time? Yes and yes, especially if the estate of the deceased is contested. Though Prince passed away in 2016, the [legal dogfight] (https://www.forbes.com/sites/matthewerskine/2024/01/17/the-battle-for-princes-estate-unending-conflict-legal-drama-and-lessons-for-family-business/) over his estate continues in probate to this day.
Another issue centers around control. During one’s lifetime, anyone “of sound mind and body” — the actual legal phrase — can create a will. It can take as little as 20 minutes on FreeWill, a no-fee, online will-writing service. Go a step further and you can create something called a revocable living trust.
Don’t let the word “trust” intimidate you. In simplest terms, it’s a document that allows you to keep control of your money and property and designate who receives it once you die.
“Revocable” means you can change the terms at any time, so long of course as you’re “living.” As the assets aren’t considered a part of your estate, they sidestep the probate process.
It also lets you continue to use assets transferred into the trust: for example, a house or money from investments. Still, the advantages of this trust have their limits and certain items will only create headaches if held there.
Read more: Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. Here’s how you can save yourself as much as $820 annually in minutes (it’s 100% free)
Five items to leave out of a revocable living trust
Even as his granddaughters begged Pete to keep his collection of Beanie Babies out of the living trust and just hand ’em over (such sweet kids), he turned his attention to other things and came up with this list of five priority items to leave out.
Vehicles. Whether it’s a ’63 Corvette, Harley chopper or prop plane, all that’s required to pass it on is a simple written instruction to transfer the title to a beneficiary. In a trust, you’re exposed to lawsuits over accidents that involved the vehicle.
Annuities and retirement accounts. A trust can turn non-taxed accounts into taxable ones. But you can make the trust itself the beneficiary so that these accounts pass directly to your trustees without some IRS agent crashing the wake.
Life insurance. Simply name your beneficiaries within the policy. Or, create an irrevocable life insurance trust (ILIT) to avoid estate taxes.
Assets held in other countries. This gets complicated as you may not be able to do it in the first place — and if you can, you’ll need to consult an estate attorney licensed in the country where your international assets are located.
Checking and savings accounts. If you use these to pay monthly bills, you may run into financial complications unless you’re the trustee and granted full control of trust assets. There’s a much easier route to take: Keep these accounts out of the trust.
All this settled, Pete has earned some well-deserved peace of mind. As for the Beanie Baby thing, he’ll leave that for another day … or maybe probate.
And if Pete were real, he’d surely remind you that the information in this article does not constitute legal advice. Talk to a trust lawyer in your state, financial adviser or other legal/finance professional before making any decisions related to probate protection or trusts of any kind.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.