Author Topic: A trust or a will, which makes more sense?  (Read 2318 times)

rob in cal

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A trust or a will, which makes more sense?
« on: September 29, 2014, 09:24:12 AM »
   Apologies if this has already been covered, but I couldn't find any discussion on this.  My wife and I are wondering if we should set up a trust or just wills for dealing with our assets after our deaths.  We have assets right now of around 600 to 700 k, (half of it is home equity), and in my reading of California estate law, found that estates valued over 100 k not in a trust would have to go through a probate process which would entail some kind of costs.  Also, over the next few years, I'm hopeful that our assets will continue to grow. We have two children who we'd want as our heirs, and our assets are pretty simple, home, IRA's, business stocks, brokerage accounts.  We are in our 40's, but want to get this process started, as one never knows what the future holds.  I'd rather not set up a trust, but wonder if our estate size makes that the best option. 
    Also, how easy is it to set up a will or a trust without a lawyer, through the online process? And should my wife and I both set up individual trusts/ and or wills?

Bob W

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Re: A trust or a will, which makes more sense?
« Reply #1 on: September 29, 2014, 09:31:11 AM »
You will want to think long and hard about this.     Trusts should be written to be growth vehicles as most trustees will simple put the funds in CDs and draw off 2 or 3% a year in fees for managing the trust.

You might consider looking into Panamanian trusts as they can be self directed and you could begin small and have your children on your management board now.  That way they could begin to learn over time.   

You hopefully have a very long time to plan this.   Generally, have a sell the house upon death deal with the cash assets going to the trust.

Thanks for the post!


GizmoTX

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Re: A trust or a will, which makes more sense?
« Reply #2 on: September 29, 2014, 09:52:45 AM »
It's not either/or. You each need wills that provide for 3 scenarios: 1) you die, 2) you & spouse die (within a short time period of each other), 3) entire family dies. Your wills should be identical except perhaps for beneficiaries for scenario 3, because each will deals with 50% of your total assets (community property state). Your wills should specify guardians for your minor children (present & future) for scenario 2 & how the guardian should be funded. You can specify a fiduciary like an investment bank if your guardians are not good money managers. I'm assuming you each leave everything to the other in scenario 1. You should also draw up "springing" power of attorney documents in case either of you becomes incapacitated.

Do not do this without an experienced lawyer in your state. Do your decisions in advance to minimize the billable time, but you do not want to find out after a death that the will has serious problems.

Trusts become feasible when your net worth is great enough to benefit from some tax planning or you are really into anonymity. The probate issue depends on your state. (We're in TX which is very probate friendly.) Your lawyer can structure your wills to "pour" your assets into the trust(s) at the time of the first death.
« Last Edit: September 29, 2014, 09:59:16 AM by GizmoTX »

Cheddar Stacker

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Re: A trust or a will, which makes more sense?
« Reply #3 on: September 29, 2014, 10:20:51 AM »
The will comes first and is cheaper. Once that's done you should consider a Revocable Living Trust. This will avoid probate, which can be costly but more importantly will delay things substantially. You don't want a court involved, I've personally seen the negative consequences of this.

A Revocable Living Trust will hold all your assets, so you'll need to re-title them or designate the trust as the beneficiary (life insurance, for example). The trusts' tax ID # will be your social security number, so you will continue to own everything indirectly through the trust and you will continue to pay taxes on the income. The trust does not need to file an annual tax return.

When you pass on the trust will allow for a quick distribution of your assets to the beneficiaries.

Bob W

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Re: A trust or a will, which makes more sense?
« Reply #4 on: September 29, 2014, 12:15:44 PM »
Quick distribution may not be a main concern.   Hopefully your children and grandchildren will be very self sufficient at the time of your deaths.

Avoiding gift and inheritance taxes will be a concern as well.

My thinking is that this is an issue you will want to spend substantial time and effort researching.

A will couldn't hurt in the short term as you can download state specific forms on the net very inexpensively.

Remember that a will is not something that should be read as a surprise upon your death.   It should be discussed openly and annually.

You should also have a place for all the important documents,  a "goto" place.   

One thing that a long term trust can accomplish is that you could design it so that no more than 2 or 3% of the funds are disbursed annually.   In that case,  if you are investing long term,  the trust should last indefinitely.    You'll want to be sure that trust management fees don't eat up the returns.

Thanks again for this post.   Reminded me I need to get on this myself.