Money Mondays are back! This week I start a series on trusts. I hope you’ll join in the discussion. Please feel free to use the comments section with any questions or email me privately if that’s more comfortable for you. And now here we go: Money Monday – Trusts, Part 1.
Possibly the most important part of an estate plan is a living trust. Before your eyes glaze over, let me explain. First, you don’t have to be in your twilight years or incredibly wealthy to consider forming this type of trust. On the contrary, as you’ll see over the next couple of weeks, if your family is just starting out it may still a good idea to create a living trust.
In its most simple terms a trust is an arrangement where one or more individuals (grantors) give title of assets to one or more individuals (trustees) to manage for the benefit of one or more individuals (beneficiaries). One of the most common trusts is a living trust. In this case the grantors, beneficiaries and trustees are often initially the same people, usually a husband and wife. Okay, that wasn’t simple at all but stay with me! I think an example will help clarify.
Let’s say John and Mary Smith, husband and wife, create a trust today with the help of their attorney. After creating the trust, they and/or their attorney will title all of their assets into the name of the trust. Trust names are often really obvious, like the “John J. Smith and Mary B. Smith Living Trust Dated 07/13/2015.”
While John and Mary are alive they are the beneficiaries of their trust. They still receive income from any investments and they enjoy the use of whatever houses, cars and other assets they owned prior to the day they created their trust. The only difference is the names under which those assets are held. Instead of “John and Mary Smith” on the deed to their house or the title to their car, “The John J. Smith and Mary B. Smith Living Trust Dated 07/13/15” will be name on and owner of all of their assets as John and Mary move into the trust.
John and Mary are the trustees. They have the same rights they had yesterday. They still have the right to manage any investments. They have the right to sell their house and cars and buy new ones. Essentially nothing is different while they are living, except the names on accounts and property titles.
Why would John and Mary (or you) create a living trust? There are a number of reasons why this type of trust could be important to you. I’ll be covering trusts for the next several Money Monday posts. For now, how about saving hundreds or even thousands of dollars in probate costs? Would that be enough reason for you to create a living trust?
Check back next week for Part 2 of Money Monday – Trusts. Have a great week!
