This keeps coming up between the spouse and me. We went to a seminar at our credit union a few years ago about why we would need a trust. I still can’t wrap my head around the reasons. Here is our situation:
–There are just two of us, a retired, married couple.
–Our assets are stocks, a couple bank accounts, a paid for house and 2 paid for cars.
–Everything is titled in both our names.
–Our Wills leave everything to the remaining person
–The remaining person leaves everything to the 2 adult daughters equally.
–If we die together, everything is left to the 2 adult daughters equally.
My mother died a few years ago, and when it became apparent that she was having problems, we took her with us and changed everything into joint accounts at her banks with me on the accounts, as well as herself. When she died, it was very easy to take over the accounts. There was a small town attorney that filed for probate at the courthouse and it was pretty simple.
So, now I am hearing we need a trust. Can anyone explain the reasons a trust would benefit us? The one thing I am not sure of, is if it would help us regarding liability. (For example, a workman falls on our property while doing repairs, and then decides to sue us…) Thanks for any suggestions or info. I am just on the starting edge of this, so please don’t scold me for not knowing something. Thanks!
I am NOT a lawyer, but in many states the use of a revocable trust allows you to essentially bypass probate court and save money and time. Another issue may be what happens if you and your spouse are still alive but mentally incapacitated. In some states, a trust can come in handy/make transitions like this easier versus dealing with state agencies, etc.
Best thing to do is check out legal resources in your state online to get a general answer; then if warranted consult a local estate attorney for advantages/disadvantages versus cost.
Trusts most often are needed when you have children from a previous marriage. Then trust provides for surviving spouse and takes care of distributing assets to the children.
They can also be used to take care of children needing special care. And if your estate is larger than the federal exemption (currently $12+MM but expiring in 2025) an AB bypass trust can be used to double your exemption.
A major advantage of a trust is you avoid probate. In some states probate can be expensive. But also your estate becomes a public document at the local courthouse. Trust keeps it private.
There are other ways to avoid probate. In many states you can do transfer on death on financial assets, as well as real estate, and even title of your automobile, etc. That also avoids probate.
A while ago Living Trusts were heavily promoted. And for a while estate tax exemption was as low as $600K. They were popular then.
Trusts now are out of style most places but it depends on your circumstances.
You will find books on trusts at your local library if you want to know more about them and something about how people use them. You probably need an attorney to set one up for you. And then fees to keep paperwork up to date.
One drawback to this approach is that it makes the child’s problems the parent’s problem as well. Clearly, it worked fine for your situation, but there are many times when this is a bad idea.
The main risk is that by putting the child’s name on the parent’s account, it makes the assets in the account subject to any problems the child might have. Clearly, this would be a terrible idea with a child who is financially irresponsible. But it can also be an issue if “bad things” happen to an otherwise responsible adult child. Being under-insured for some kind of accident comes to mind.
Some try to overcome this with Transfer On Death titles to the account. The assets remain the property of the parent, without the risk noted above. On the other hand, you still need to prove the death before the child will have access to the account. So if the parent becomes unable to manage their own affairs, the child will have a very hard time managing or accessing the assets while their parent(s) are incapacitated. Of course, there’s the “impersonating the parent” solution, which is commonly employed but runs into serious issues if things don’t go perfectly.
Then there’s probate. That is very much a state-by-state issue. In some states, probate is relatively quick and inexpensive. In others, it can be drawn out and expensive. (My home state of California is in that latter category.) If you are in one of those slow, expensive states, avoiding probate via a trust can be quite helpful. If you are in the former - the quick and cheap states - a trust isn’t as helpful.
A trust does nothing for this. It might slow the process of paying the liability costs, but it won’t shield you from liability.
Trusts are a tool in the tool bag. They work well in some situations, they’re not as helpful in others.
The case of parent unable to handle affairs is usually addressed with a power of attorney. Joint ownership for some accounts is convenient in handling funeral and other arrangements.
A major benefit of inheritance is stepped basis of assets. You avoid income taxes on their increased value. Value on date of death becomes your cost basis. Joint ownership puts that benefit at risk.
Thanks for all the replies and the insight. The “kids” are both in their late 50’s, very stable, happily married, and financially responsible. They all have careers making big money and don’t really need any inheritance from us. I guess one question I have is “What happens in probate?” I guess the state we reside in has it own laws on what has to occur. I am assuming they search for any outstanding debts, and perhaps lawsuits, or something(?) We are in Florida… I will try to research what is involved in probate in Florida. Thaks for giving me several thoughts and directions to take into consideration.
Schools often include estate planning courses for a few bucks in their evening adult prigrans. Often taught by a local attorney. That can be an easy way to learn about local norms.
Some states also have inheritance taxes. Probate makes sure that any taxes due are paid.
Some note that probate means a judge overlooks the process to see it meets all requirements. Often an attorney is required. It can be expensive when attorney bills for a percent of assets.