[Quiz] Do You Need A Living Trust?
August 21, 2017A revocable living trust can be a powerful, customized estate planning tool. However, trusts are time-consuming and best drafted by an estate planning attorney, which can be costly. Take this short quiz to figure out if it makes sense to think about incorporating a trust into your estate plan:
1. Do you or your spouse have children from a previous marriage?
If you answered yes: A living trust may help
Trusts are not just for the wealthy. A trust allows you (the “grantor,” or person who creates the trust) to name both beneficiaries (the people who inherit your estate or income from your estate) and trustee(s), the person or firm who will manage those assets for their benefit. The beneficiary and the trustee can be different people. If you or your spouse have children from a previous relationship, setting up a trust allows you to specify who inherits what, for how long, and under what circumstances, as well as how old the beneficiaries need to be before taking control of the assets. For example, you could set it up so that your surviving spouse receives income from the trust until their death, then your children receive the balance. See Financial Planning for New Stepparents from more ideas for blended families.
2. Do you want to keep your wishes private?
If you answered yes: A living trust may help
Typically, when someone dies there is court supervision – probate — to determine if that person’s will is valid and authentic, or if there is not a will, what will happen to the deceased person’s assets. While it’s not likely to show up on a reality TV show about what happens to your stuff, probate is a public process.
It’s also time-consuming and, if contested, can be costly. A living trust bypasses probate, so that any assets titled in the name of the trust pass easily and privately from you to your beneficiaries with some simple paperwork. If you or your spouse own a business, it may be a good idea to place the business in your trust for this exact reason, so that ownership doesn’t get tangled up in the estate settlement process. (this does not, however, keep the IRS from levying estate taxes on the value of the business)
Keep in mind that a trust is only effective for what you put into it, so if you do create a living trust you will need to re-title any non-retirement bank and brokerage accounts as well as real estate to the name of your trust. Leaving accounts in your name alone means they go through probate, even if you have a trust.
3. Is most of what you own in retirement accounts and your home?
If you answered yes: A living trust may not be worth the expense
If most of what you own is going to pass by beneficiary of law, which means you’ve named beneficiaries on your life insurance policy, retirement accounts and pension, and you own your home and cars jointly (JTRWOS) with your spouse – the costs and effort of establishing a living trust may not be worth it to you. See this article about why you may not need one.
4. Do you expect to have a taxable estate (more than $5.49 million in 2017 if single and $10.98 million if married)?
If you answered yes: A living trust may help
Under the current law, most estates will not owe federal estate taxes. According to the IRS estate tax exclusion, you can currently leave quite a lot of money and property to others federal estate tax-free. Married couples get twice the exemption amount, and whatever remaining amount of the exemption not used by the first spouse’s estate can be claimed by the second. However, if the value of your money and property, including any assets held in your name – real estate, brokerage accounts, retirement accounts, businesses, coins, jewelry, collectibles, cars, etc. — as well as life insurance, is expected to exceed the $5.49 million limit ($10.98 million if married) you should consult with an estate planning attorney about trust strategies, including a living trust and other types, which could minimize estate taxes for your heirs. You may also want to check to see how estate taxes work in your state as well.
A trust won’t help you escape estate taxes, but it can help you take full advantage of the rules around exclusions.
Check for resources at work
Your employer these days may be your best financial services provider. Check your EAP for estate planning resources available to you at no cost, including online do-it-yourself services for creating wills and health care directives, or referrals to a local attorney. If you are considering creating a living trust, you might want to enroll in your company’s voluntary legal benefit during the next open enrollment, if available. This will help save you significantly in trust preparation costs.
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