Money Monday – Trusts, Part 2

berry & white 182

Happy Monday!  Today I’m continuing our discussion on living trusts.  To recap last week, a living trust is exactly what it sounds like – a trust you create while you are living.  It serves several purposes, including minimizing or avoiding probate, distributing assets to beneficiaries, smoothly transferring management of assets to another person at your direction and the ability to accomplish all of this privately.

Probate is the legal process of validating a will and determining rightful ownership of assets.  Probate is a public, and potentially pricey process.  It must be  public so that anyone with a potential  claim to the assets has the ability to access information and stake that claim.  During probate, your will can be contested by those who were not listed as heirs but think they have a right to your assets.  We’ve all heard those stories paraded through the news.

Because probate is public, a large amount of your private finances are suddenly on display for any curious onlooker.  You are no longer around to worry about it, but what about your family?  How embarrassing might that be?  And as they are dealing with their grief, do you also want them fighting for those things you had hoped to pass to them smoothly?

The way assets are titled helps determine what happens to them in the event of the owner’s death.  Many married couples hold title to their residence as John and Mary Smith, joint tenancy with the right of survivorship (JTWROS).  This means if Mary dies, the residence passes to John by process of law.  No probate is involved with respect to the house because law already exists to dictate how the asset is handled.  When John dies, however, what happens to the residence?

In a trust, as discussed last week, the assets are titled in the name of the trust. The death of a trustee does not affect the ownership of the asset.  The successor trustee (the trustee named to take over in the event of death or incapacity of the initial trustees, John and Mary), directs the affairs of the trust per the trust document instructions.  If the house is to be sold and proceeds distributed to the beneficiaries (the heirs), the trustee handles the transaction.  The entire process is only as public as the listing of a house on the real estate market would be.

This is obviously a huge topic. It’s going to take us a while to go through it. Discussion here is not meant to replace a consultation with your attorney regarding whether or not a living trust is appropriate for you.  My hope here is to create that dialogue, or at the very least stir some family discussion on the matter.  It’s all about what is best for you in your particular situation.

To your better wealth,