Your last name doesn’t have to be Trump or Hilton to consider creating a trust for your offspring. A living trust, also known as a Revocable Living Trust or a Family Trust, is a viable financial planning tool for anyone — not just the rich and famous.
A living trust is a legal document that holds title or ownership of property and assets on behalf of its beneficiaries. You appoint someone (a successor trustee) to make certain your estate goes to the ones you choose after your death. Almost anything can be placed in a trust: savings accounts, stocks, bonds, real estate, life insurance, and personal property. You can change a revocable living trust; you can’t touch an irrevocable one.
Benefits are numerous. A trust avoids the hassle of probate, prevents the courts from controlling your assets if you’re incapacitated, and lets you control what you leave to your children and grandchildren.
“Anyone who has a home, properties in multiple jurisdictions, minor children, disabled children, or irresponsible heirs should take advantage of a trust,” says estate attorney Deborah B. Cole, a partner with the law firm Hoogendoorn & Talbot L.L.P. in Chicago. Even if you are a single parent with shared or sole custody, a trust can ensure that benefits earmarked for your child will go directly to him or her. This is especially the case in situations where there are multiple children from other relationships living in the same household or with remarried spouses, who have children from a previous marriage. “A trust also protects property brought into a marriage regardless of whether there is or isn’t a prenup agreement,” adds Cole.
Many people are under the impression that their will alone is sufficient to avoid probate. Unfortunately, a will is simply an expression of your wishes and must go through some kind of court process.
Before your estate can go to your children, probate court has to determine and settle your debts, establish clear title to everything you own, and then distribute the estate according to your will or to the intestate succession statutes in your state.Cole says another misunderstanding is that holding assets in joint tenancy will bypass probate. Joint tenancy is the method of putting your child’s name on property or accounts. Then there’s the privacy factor. Unlike a will, a trust is not filed with the court and does not become public record at your death.
Establishing a trust forces you to clean house and to identify what you have and where it goes upon your death, says Cole. The first thing a lawyer will want to see is an inventory of all your assets. Lawyers can charge upward of $1,000 to draw up a trust. However, there are books and programs that can help you out. Among them: Quicken WillMaker & Estate Planning Plus 2007, Plan Your Estate by Denis Clifford and Cora Jordan (Nolo Press; $44.99), and Make Your Own Living Trust by Denis Clifford (Nolo Press; $39.99).
Armed with these tools, you can create a valid Declaration of Trust yourself.