Allow us to present to you the hypothetical case of Pete Moneywise, a married 78-year-old father of three who wants to get his financial affairs in order before he dies.
Although he plays only a minor role in this article, his situation reflects what countless people of retirement age face when preparing wills and setting up trusts.
“I hate probate,” Pete tells us in an 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 and trying to get everything sorted out.”
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He explains how the probate process caused tension between his siblings and left him frustrated by an unanswerable question: “Why didn’t my father set up a living trust? That would have made everything a lot easier.”
To Pete’s credit, he followed his own advice. His living trust to help his children is almost complete, but now there’s another tricky question: what, if anything, should be left out? He did his research and identified five items. The list could be useful to you as you plan the structure of your living trust.
Probate procedure explained: It is better not to go there
Many people don’t even know what the word “executor” means until it is literally defined.
This court-supervised process involves many steps and can generate mountains of paperwork, including (but not limited to) probating the will if there is one, naming an executor if there is none, paying off liabilities and distributing any remaining assets.
Does it cost legal fees and take a lot of time? Yes and yes, especially if the deceased’s estate is contested. Although Prince died in 2016, the (legal battle) (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 to this day.
Another issue revolves around control. During one’s lifetime, anyone who is “mentally and physically sound” — that’s the actual legal term — can create a will. It takes just 20 minutes with FreeWill, a free online will-writing service. Go a step further and create something called a revocable living trust.
Don’t be intimidated by the word “trust.” Simply put, it’s a document that allows you to keep control of your money and property and determine who gets it after you die.
“Revocable” means you can change the terms at any time, as long as you are “alive” of course. Since the assets are not considered part of your estate, they bypass the probate process.
You can also continue to use assets transferred into the trust, such as a home or money from investments. However, the benefits of this trust have their limits, and certain items will only cause headaches if kept there.
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Five things to avoid in a revocable living trust
Although his granddaughters begged Pete to keep his Beanie Babies collection out of the Living Trust and just hand them over (such cute kids), he turned his attention elsewhere and created this list of the top five things to leave out.
vehicles. Whether it’s a 1963 Corvette, a Harley chopper, or a prop plane, all that’s needed to pass it on is a simple written instruction to transfer the title to a beneficiary. With a trust, you’re exposed to lawsuits for accidents involving the vehicle.
Pensions and retirement accounts. A trust can convert tax-free accounts into taxable ones, or you can make the trust itself the beneficiary, so those accounts pass directly to your trustees without an IRS agent interfering.
life insurance. Simply name your beneficiaries in the policy. Or set up an irrevocable life insurance trust (ILIT) to avoid estate taxes.
Assets held in other countries. This gets complicated because you may not be able to do this. If you are, you will need to consult with a licensed estate attorney in the country where your international assets are located.
Current and savings accounts. If you use these accounts to pay your monthly bills, you may run into financial problems unless you are the trustee and have full control of the trust funds. There is a much easier way: keep these accounts out of the trust.
With all that 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 for estate settlement.
And if Pete were real, he’d be sure to remind you that the information in this article does not constitute legal advice. Speak to a trust attorney in your state, a financial advisor, or other legal or financial professional before making any decisions regarding estate protection or trust funds of any kind.
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This article is for informational purposes only and should not be construed as advice. It is provided without warranty of any kind.
