Four Steps to a Worry-Free Will and Trust

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Four Steps to a Worry-Free Will and Trust

worry-free will

There aren't a whole lot of guarantees in life, but here's one thing all of us can count on: We are all going to die.
It is important to prepare a will and in many cases a trust.

Sunday, October 23, 2005
There aren't a whole lot of guarantees in life, but here's one thing all of us can count on with 100 percent certainty: We are all going to die.
With those odds in mind, why on earth do so many people not have a will or trust? About 57 percent of all adults don't have a will, according to a survey conducted by the AARP. And it's a safe bet that those without a will don't have a trust either.

Neither document is hard to create. You can do it yourself with some computer software and then merely have it reviewed by a lawyer. Or you can hire an attorney to draw up all the documents for you. Depending on which route you take and the level of detail needed to deal with your situation, you could be looking at anywhere from a few hundred bucks to $2,500. Just be sure in either case to only work with an attorney who knows estate law. You want a specialist well-versed in all the important issues and details, not a generalist who slaps together an off-the-shelf template.

Wherever you fall along this cost scale, I'm confident you'll find it money well spent. Think for a minute of the alternative. Say you pass away "intestate," that is you leave no documentation to explain how your assets should be handled. Without a will or trust, the disposition of your estate will be carried out according to your state's laws, however poorly they may fit your particular situation. That means some or all of your loved ones could be shortchanged or left with nothing -- all because you failed to deal with these fairly simple inheritance issues.

It's time to finally take care of something you know you need to do.

1. Create and fund a living revocable trust.

Wills alone don't cut it anymore my friends. As well-intentioned as they are, in most cases they can leave your beneficiaries with lots of logistical headaches. The basic problem is that even if you spell out who gets what in a will, you haven't officially transferred any of the assets to those heirs. When you die with just a will, your beneficiaries will most likely see it wind its way through a court process known as probate. Depending on what state you live in, it can take months -- if not years -- and cost thousands of dollars in legal fees.

To make sure your heirs avoid this major hassle, set up a living revocable trust. The transition of your assets to your beneficiaries is ridiculously easy once you have this document in place. And please don't think this is something only rich folks need. Most everyone can benefit from a revocable trust.

Here's how it works. You create a living trust in your name. As the creator of the trust, you are known, first of all, as the "trustor." Next, since these are your assets and you want to have control over them, you will also be designated as the "trustee." Then, since you own all these assets and they are for your benefit while you are alive, you are also the "beneficiary." But you will name others as beneficiaries of the trust too. These are the people who will get your assets after you have died, and they are known as "successor beneficiaries." To make the trust valid you have to "fund" the trust. This means you (or a lawyer) must legally transfer your assets -- your home, your investments, etc. -- into the trust.

I know that's throwing a lot of technical terms at you, but on a practical level it's quite simple.

Let's use your home as an example. Instead of you being the owner on your home deed, it would now be owned by your trust. Since you are the trustee who runs the trust with complete authority, you are still the decision maker when it comes to handling your home. You can buy and sell at any time. Your property tax does not change. You do not have to file a separate tax return. When you create and fund a trust and are the trustee and trustor, you maintain absolute control and flexibility over your possessions.

As you can see, nothing much really changes in your life when you put your assets in a trust. When you pass away, though, you'll make life much easier for your loved ones. The trust is simply passed to them at the time of your death. There's no need for a court review. All your beneficiary needs is a death certificate and a copy of your trust that outlines your specific inheritance wishes.

2. Add an "incapacity clause" to your trust.

For those of you who aren't too concerned about inconveniencing your heirs by leaving just a will, listen up. You could also be putting yourself at risk as well.

While a will only kicks into action after you die, a trust that includes what's called an "incapacity clause" allows someone you have appointed to handle your affairs if you aren't able to speak up for yourself. Sudden illness can befall any of us, no matter how young we are. Remember, Terri Schiavo was just 26 years old when she collapsed from heart failure. If you fall ill, who will pay your bills? Who will look after your money?

Financial power of attorney isn't the answer. The reality is that many financial powers of attorney become null and void the day you fall ill, unless you have included an incapacity clause in the document. Moreover, financial powers of attorney can easily be revoked. Financial institutions are notorious sticklers for which POAs they will honor.

You can sidestep all these potential problems by having a trust with an incapacity clause in it. When you insert the incapacity clause, you designate a successor trustee to step in when needed. The person you appoint as the successor trustee can be anyone: A partner, a friend, a cousin. All that's important is that you trust them to handle your affairs.

3. "Joint Tenancy With Right of Survivorship" is no substitute.

You may be thinking that you don't need a trust to handle the inheritance of your home, because you and your spouse or partner already have it set up as Joint Tenancy With Right of Survivorship (JTWROS).

A JTWROS simply spells out that the surviving spouse or partner inherits the deceased partner's share of the home. A JTWROS says nothing about what happens when the surviving partner dies or sells the home. With a JTWROS, the surviving partner becomes the sole owner with no strings attached. So if you die, your spouse will own the house outright. And if, in the case of a second marriage, her will says the house is to go to her children upon her death, then guess what? You just disinherited your own children, and there is nothing they can do about it.

With a trust you can make it clear that your surviving spouse can stay in the home, but you also can clearly lay down inheritance rules for when the home is eventually sold.

I have also heard of some well-meaning parents who have converted their home to a JTWROS in the names of their children. The big problem with this move is that you could lose the house in the event of a particular sort of misfortune. Let's say your 25-year-old ends up in serious car wreck. The lawyer for the injured party starts digging for any "assets" that can be used in a settlement. If your child is a co-owner of the home, it can become part of the case, and you might have to sell to settle. There are also gift-tax implications when you put your child's name on the title of your home. So please don't use JTWROS as an estate-planning tool for your heirs. A living revocable trust is the smarter move.

4. Don't forget the will.

Time to come full circle. After spending the bulk of this article explaining why a will won't cut it on its own, I do want to make a pitch for adding a will as a complement to your trust. That's because the only items covered by a trust are those that have been "funded" -- specifically added to the trust. But it's possible, of course, to acquire assets after setting up your trust and, through oversight or sudden death, simply fail to have everything added in at the time you pass away. When that happens, having a "back-up" or "pour-over" comes in mighty handy.

Following these four steps will help you and your family sleep easier knowing that you've prepared responsibly for the inevitable.

I know that's throwing a lot of technical terms at you, but on a practical level it's quite simple.

Let's use your home as an example. Instead of you being the owner on your home deed, it would now be owned by your trust. Since you are the trustee who runs the trust with complete authority, you are still the decision maker when it comes to handling your home. You can buy and sell at any time. Your property tax does not change. You do not have to file a separate tax return. When you create and fund a trust and are the trustee and trustor, you maintain absolute control and flexibility over your possessions.

As you can see, nothing much really changes in your life when you put your assets in a trust. When you pass away, though, you'll make life much easier for your loved ones. The trust is simply passed to them at the time of your death. There's no need for a court review. All your beneficiary needs is a death certificate and a copy of your trust that outlines your specific inheritance wishes.

2. Add an "incapacity clause" to your trust.

For those of you who aren't too concerned about inconveniencing your heirs by leaving just a will, listen up. You could also be putting yourself at risk as well.

While a will only kicks into action after you die, a trust that includes what's called an "incapacity clause" allows someone you have appointed to handle your affairs if you aren't able to speak up for yourself. Sudden illness can befall any of us, no matter how young we are. Remember, Terri Schiavo was just 26 years old when she collapsed from heart failure. If you fall ill, who will pay your bills? Who will look after your money?

Financial power of attorney isn't the answer. The reality is that many financial powers of attorney become null and void the day you fall ill, unless you have included an incapacity clause in the document. Moreover, financial powers of attorney can easily be revoked. Financial institutions are notorious sticklers for which POAs they will honor.

You can sidestep all these potential problems by having a trust with an incapacity clause in it. When you insert the incapacity clause, you designate a successor trustee to step in when needed. The person you appoint as the successor trustee can be anyone: A partner, a friend, a cousin. All that's important is that you trust them to handle your affairs.

3. "Joint Tenancy With Right of Survivorship" is no substitute.

You may be thinking that you don't need a trust to handle the inheritance of your home, because you and your spouse or partner already have it set up as Joint Tenancy With Right of Survivorship (JTWROS).

A JTWROS simply spells out that the surviving spouse or partner inherits the deceased partner's share of the home. A JTWROS says nothing about what happens when the surviving partner dies or sells the home. With a JTWROS, the surviving partner becomes the sole owner with no strings attached. So if you die, your spouse will own the house outright. And if, in the case of a second marriage, her will says the house is to go to her children upon her death, then guess what? You just disinherited your own children, and there is nothing they can do about it.

With a trust you can make it clear that your surviving spouse can stay in the home, but you also can clearly lay down inheritance rules for when the home is eventually sold.

I have also heard of some well-meaning parents who have converted their home to a JTWROS in the names of their children. The big problem with this move is that you could lose the house in the event of a particular sort of misfortune. Let's say your 25-year-old ends up in serious car wreck. The lawyer for the injured party starts digging for any "assets" that can be used in a settlement. If your child is a co-owner of the home, it can become part of the case, and you might have to sell to settle. There are also gift-tax implications when you put your child's name on the title of your home. So please don't use JTWROS as an estate-planning tool for your heirs. A living revocable trust is the smarter move.

4. Don't forget the will.

Time to come full circle. After spending the bulk of this article explaining why a will won't cut it on its own, I do want to make a pitch for adding a will as a complement to your trust. That's because the only items covered by a trust are those that have been "funded" -- specifically added to the trust. But it's possible, of course, to acquire assets after setting up your trust and, through oversight or sudden death, simply fail to have everything added in at the time you pass away. When that happens, having a "back-up" or "pour-over" comes in mighty handy.

Following these four steps will help you and your family sleep easier knowing that you've prepared responsibly for the inevitable.



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