As I was going though the assets, a question arose if I should have a trust. I know that one of my friends has a trust. He had to work quite a bit with his lawyer to set it up. When he wanted to make some changes, he had to work with the lawyer again.
Is this hassle worth my time and money?
The main reason to have a trust is to avoid probate. Probate is a court supervised process at the end of which the assets will be distributed to heirs. The probate processes can be long and costly and may require a probate attorney.
If assets are only in the deceased name, everything will go to probate. Probate takes time and money. Depending on where you live, probate process can cost 10% or more of your gross assets.
Having a will is not a way around it. The will has to go trough probate.
The purpose of a living trust is to avoid probate and to reduce attorney fees. Setting up a trust requires time and attorney consultation. All accounts should be re-titled to the trust.
It sounds like a trust is good solution, but let see first if really everything goes to probate and if it is possible to avoid probate without having a trust?
There actually some non-probatable assets which do not go trough probate at all.
Probatable assets:
Property owned solely by descendant (real estate, car, bank accounts, insurance and also thighs like jewelry, collectibles, furniture).
Non-probatable assets:
1. Property held in joint tenancy or as tenants by the entirety.
2. Bank and brokerage accounts held as tenants with right of survivorship (WROS), or with transfer on death (TOD) or payable on death (POD) beneficiaries.
3. Life insurance and retirement accounts with designated beneficiaries.
4. Property held in a trust.Based on that, almost all my assets can be made non-probatable.
All our insurances and retirement accounts have designated beneficiaries.
Almost all other accounts are WROS.
And almost all property is held joint, except one of cars which is very old.
I would not even know which additional assets I would put into the trust, because I don't have any other assets.
It looks like I don't need a trust if the only reason to have it is to avoid probate.
Few things which might still go to probate are very few like that old car. What I will do next is to make sure that all accounts and assets are non-probatable (see the to do list below).
Here is a to do list if you want to avoid probate on most of your assets and don't want to bother with a trust:
1. Have both spouses names on all checking and savings accounts.
2. Have all brokerage accounts as Joined With Right Of Survivorship (WROS).
3. Have designated beneficiaries for all your retirement accounts (401k, IRAs, and other including HSA).
4. Have designated beneficiaries on life insurance.
5. Make sure that all property (house, cars, land) are owned jointly.
6. If you have any other assets or accounts, check if similar rules apply to those assets.
If you want to add your child to the deed of the house or as joint owner on the brokerage account, the half of the account or house value will be immediately considered a "gift" and will trigger gift tax. Since the threshold for the estate is relatively high, it might be a better decision not to add children as joined owners.
In summary,
For a childless couple to make all assets non-probatable will be enough and a trust will not be needed. Unless they care enough about the person who will inherit the estate to save him/her the hassle and costs of the probate.
For a couple with children where the child will (most likely) not be a joined owner of the assets, a probate may be useful. We have a child and later this year I will look into the trusts.
So far I know that setting up a trust requires a lot of time for transferring all assets (including changing property deeds) into the trust and the lawyer fees of approximately $4,000-5,000.
