Living Trust vs Probate

[zetta]

What are your thoughts on having a living trust vs just going through probate with a regular will? The assets would be a house, mutual funds, and a little stock that is all community property.

[rduell]

From what I've read in Suze Orman's newest book, you want both. I'm not well-versed in legalese but I'm sure someone else can explain why.

[vsjhoc]

There's some good info at Nolo: Law Books, Legal Forms and Legal Software under "Wills and Estate Planning."

Basically, a trust costs more when you're alive but saves money after you're not. A will is the reverse -- it's relatively inexpensive now, but can be costly later.

Living Trust - advantages:

*Privacy (the terms of it are not publicly available, unlike a will that has been probated)
*Easier and faster to get assets to beneficiaries
*Save on probate costs (no lawyers' fees or court costs)

Living Trust - disadantages:

*You still need to have a will. It's not an either or because you can't take care of everything in the trust
*More expensive to set up than a will, partly because you have to transfer all your assets into the trust
*In some states, if you transfer your primary residence to your trust, you lose your homestead exemption and have to pay more property taxes
*You have to keep it up to date when you acquire more assets. If you forget, those assets will pass according to the terms of your will. If you don't have a will, the state where you live will decide who gets what.

Will only - advantages:

*Less expensive than a trust
*Easier to change as your circumstances change
*Less complicated

Will only - disadvantages:

*Privacy - anyone can view the terms of your will after it's been probated
*Slower and more expensive to get the assets to the beneficiaries
*May be easier for someone to challenge the terms

[JoyJoy]

Suze Orman has a Will & Trust Kit that she sells on her website with all the important documents included (Will, Revocable Trust, Durable Power of Attorney for Health Care and Financial Power of Attorney) all for the low price of $13 and some change.

[scfr]

I'm reviving this thread because I am now trying to decide whether I should establish a Living Trust prior to purchasing a house. (I know it could be done after purchasing a house, but my understanding is that it will be much easier to purchase the house in the name of the trust rather than trying to get the title changed later.)

zetta - Did you decide to establish the trust?

Anyone else have a Living Trust who is willing to share their reasons for establishing one?

[MonkeyMama]

Scfr - I think your true concern would be that nothing happens between purchase of home and establishing the trust. Changing title to a living trust is a very simple process.

The reason we established our living trust is because the value of our estate was very high considering life insurance and home value (was $600k home at the time we did our trust). Other states may be different, but California probate takes a chunk of the estate for fees - it is basically a flat percentage. Hear too many stories of people having to sell homes to pay the probate fees - though that was not the intention of the passing relative who left homes to heirs. Our parents have a very modest home that was worth $1 mil at a time (they paid off the $100k purchase long ago). Very common scenario for more long-time residents. So people who have very modest means were paying VERY large fees in probate and also being subject to estate taxes since their net worth was well over $1 mil.

Though we are young we didn't necessarily do it for those reasons NOW. But in the long run we expect to have substantial assets, particularly with our house. We rather pay the lawyer a couple of thousand now than tens of thousands be taken out of our estate later.

I also hear the probate process can be LONG and SLOW. With a living trust, title changes immediately. For example, the trustees can sell a house (or investments) immediately if there is any need. Probate slows that stuff down considerably, which is almost a bigger issue really.

The other reason is estate tax savings, which is rather moot with current tax law. For the long run it may help though.

I was honestly not entirely convinced a living trust was what we needed at this point in time, but if you ask any of my clients who have been through probate - they will tell you - get your affairs in order. They would do anything to avoid probate again. I think mostly that is what it comes down to. I've seen too many times the pain of probate and the ease of a trust.

ETA: You could be in a position to need to revise your will/trusts if you change states so I really would wait until you moved here, or have it drawn up by a California lawyer. My understanding is there are different state laws when it comes to these things and California always seems to be the most complicated state...

[MonkeyMama]

P.S. In reply to some other posts - we used Quicken or some other software for our will before we updated it in 2006 or 2007.

It will do the job in a pinch, but that is about it. The lawyer was WORTH THE MONEY.

Example that comes to mind - we appointed SIL and her husband as guardians of our children. Our lawyer advised we leave the children to the SIL only (in case they divorce or anything). She made us think if anything were to happen if it was really his family we wanted the kids going to (& we didn't really - we just didn't THINK). Things you just do NOT think about.

There was a lot of stuff that came up and knowledge we gleamed talking to a legal professional. If you have a fair amount of assets, or you have children, it is worth the peace of mind to get it done right.

Though I will stress a $13 will is better than no will at all.

[zetta]

We tried using Quicken Will & Trust -- and realized at the last minute that I'd made some mistakes in assigning assets to the AB trusts that would probably kill any tax advantages. Decided we probably should see a lawyer instead, but still haven't done so.

[scfr]

MonkeyMama & zetta: Thanks for the input; it's very helpful!

[moneybags]

Originally Posted by scfr

Anyone else have a Living Trust who is willing to share their reasons for establishing one?

We have one. We did it to avoid probate. We have 2 kids, so I would want the money to be quickly available if needed. I followed my in-laws lead in this, as they were smart money managers. The Living Trust allowed a smooth process at the time of their deaths.