Lessons From a Tragedy
August 28, 2014If you’re like me, you were shocked and horrified when you found out about Robin Williams’ death. I can’t tell you how many interviews I listened to and movie clips I watched of him in the days after the horrible news. Buried in all that media coverage, I also saw this article pointing out that unlike so many other celebrities with untimely ends, at least Williams spared his family additional stress and grief by taking care of his estate planning with a revocable trust.
So who needs a trust? Are they only for the super wealthy like Robin Williams or should you have one too? Let’s take a look at some myths about trusts:
Myth #1: If I have a will, I don’t need a trust.
A will is a good document to have and sometimes a necessary one. Without one, the court will decide who gets your assets when you pass away according to the default rules of your state, called intestacy. If you have minor children, they can also decide who will raise them. A will lets you make those decisions but it doesn’t avoid the time, cost, and lack of privacy your heirs will face in probate, which is the process by which the court processes things like your will and provides for an orderly distribution of your assets. On the other hand, a living trust can bypass the probate process and provide you with additional control.
Myth #2: If I put something in a trust, it’s exempt from estate taxes.
While it’s true that trusts are often a tool used to minimize estate taxes, just putting an asset in a trust won’t exempt it from the estate and gift tax. The good news is that the estate tax exemption this year is a whopping $5,340,000 so unless your estate is that large, you don’t really have to worry about it. Instead, most trusts are created by middle class families to avoid probate.
Myth #3: I need a trust to avoid probate.
First, some assets don’t go through probate like anything jointly owned with rights of survivorship or retirement accounts and life insurance policies with living beneficiaries. Second, depending on your state, you may also be able to avoid probate by adding beneficiaries to your bank account (Payable on Death or POD registration), investment account (Transfer on Death or TOD registration), vehicle (TOD registration), and even real estate (beneficiary deed). However, if you live in state like my home state of California that doesn’t allow beneficiary deeds on real estate, you may need a trust to avoid probate on your home or other real estate you may own.
Whether it’s the suicide of Robin Williams or the shooting of Michael Brown, one thing I despise is the exploitation of these tragedies for financial or political gain. Fortunately, I and the rest of Financial Finesse have no financial interest in whether you create a trust or not. As Robin Williams’ character taught so well in my favorite of his movies, The Dead Poets’ Society, don’t just follow the crowd in making your decision one way or the other. Do what makes sense for you and Carpe Diem!