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Does Your Estate Planning Include a Living Trust?

Posted by Larry Jones on Feb 9, 2017 9:30:00 AM
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Everything in our world today seems to be expensive, doesn't it? When I was a child, which was, admittedly, a long, long, long time ago, my Mom used to drop me off at the local movie theatre to watch the latest Elvis film (...a long, long, long, time.....). She'd give me a dollar to spend. The price of admission was 50 cents and then I could get a large coke and popcorn for the rest of it. Have you tried taking your family to a movie lately? There's a good reason to come and see a financial planner, right there!

Well, we know how expensive everything in life can be, but have you considered dying? Kicking the bucket can be one of the most costly endeavors ever, especially if no estate planning has been done. Does the thought of giving away 30-60% of your children's inheritance give you a warm and fuzzy feeling? That's not the case for most.

There are lots of expenses that come into play when you die. Court costs, executors fees, attorney fees, taxes, filing costs, and the funeral costs are among the top. You might be interested to see how the estates of some of our most famous Americans have been plundered:

Individual Value at Death Value After Probate
John D. Rockefeller $26,905,182

$9,780,194

(-63.7%)

Elvis Pressley $10,165,434

$2,790,799

(-72.5%)

Walt Disney $23,004,851

$16,192,908

(-29.6%)

J.P. Morgan $17,121,480

$5,227,791

(-69.46%

Frederick Vanderbilt $76,838,530

$33,992,418

(-55.8%)

You can see from the chart above that not only does having a good estate plan makes sense, but not having one can be a very expensive mistake. One interesting note....you'll notice that one of the folks in the table above, J.P. Morgan, was a financial professional. Hmmm... 


An Essential Estate Planning Tool for the Common Man

Most of us will never have the worry of losing millions of dollars at our death. That does not mean, however, that you should neglect your estate plan. Even a person of modest means can find that his estate has taken a big bite, once the "frenzy" is over. One great tool in the planners arsenal is the Living Trust. This type of instrument is the cornerstone of any good estate plan. Here's some highlights of how it works:

  • The Living Trust is a separate legal entity

The Living Trust is set up by the individual, but then the trust becomes a separate entity, legally from the owner of it. The owners assets are then assigned to the trust, meaning that the trust now owns them, yet the original owner still has complete control over how the assets are handled. When you die, usually the family is the beneficiary of the trust, and all assets are then given back to them, as specified by you in the terms of the trust. The trust is revocable at any time, until your death, at which time it becomes irrevocable.

  • It will lower the costs of administering your estate

When an estate goes through the probate process, the court is involved (probate is simply the process by which an estate is settled). This usually means an attorney fee of 2-5%, possibly a fee for the Executor of the estate of 3-10%, and other fees along the way. Even with an average fee of, let's say, 5% and you have a $1,000,000 estate (not uncommon), that would mean $50,000 being lost from your heirs. A Living Trust avoids these fees (see next point)

  • The Living Trust avoids probate

When you die and a Living Trust is in place, all of the assets inside the trust are simply re-titled to the designated beneficiaries according to the terms of the trust. The court never gets involved. In addition to the financial advantages of this, there's another benefit. Everything in probate becomes a matter of public record, and all of your dirty laundry is hanging out for all the world to see. Not so with a trust.

  • It can be a valuable tool in case of incapacity or illness

The Living Trust can be set up to specifically handle such situations as incapacity, or illness. Should you be unable to speak for yourself, the trust can be your advocate, depending on how you have structured the terms of it. For example, the trust can be structured to reflect your desire to remain in your own home as long as possible, should you need long-term care.


The Downside?

The Living Trust sounds almost too good to be true. It's not the answer to every estate planning problem, but it can really deliver when you need it to. There are some up-front expenses to setting up the trust (do not try to do this without an attorney...let me say that again: do not try to do this without an attorney), but compared to some of the estate expenses that can be avoided by having one, it's usually a no-brainer. Does everyone need a Living Trust? No, I don't think so. If your estate is very small, and you have only one child who you trust as Executor, perhaps not. A will may suffice, nevertheless it's prudent to look at your personal situation with a professional planner (hint,hint). Nobody knows the dynamics of your family like you do, and no blogger or radio personality can offer you advice without getting to know you first. There are some common misconceptions about these trusts as well, and being uninformed about them can lead to heartache later on. I'll address some of these misconceptions in the next blog.

Until next time,

Larry

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Topics: Estate Planning

What you don't know can hurt you!

As a fiduciary I am required to always act in your best interests, and as a professional planner, it's my job to be familiar with all types of possible solutions and financial vehicles. In short, I have no interest in selling any particular product or any affiliation with a particular company. I work for my clients.

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