Estate Planning – Will and Living Trust

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Today, let us look at Estate Planning, the third item on the personal finance checklist. This is one area that is neglected by many people. I will admit that I have not done it yet – however, it is on my to-do-list for this year.

Here is my intent with this post – to help you get familiar with the overall process at a high level and legal terminology, things to be aware of, things you need to consider, and the next steps you should be considering with the help of an estate planning attorney. 

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If you were to die today, everything that you own becomes part of your estate.

No Will Scenario

If there is no Will, the probate court process will oversee that your estate assets are used to pay off your outstanding debts. What is left remaining in your estate would be distributed to your family in accordance to the state law.

The probate court judge will decide who will get your property and who will get custody of your children if they are minors, according to the state law. You may not agree with either decision the judge makes. You could avoid both scenarios by writing a simple Will.

 

Will Scenario

If you have a simple Will, the probate court process will oversee that your estate assets are used to pay off your outstanding debts. Whatever is left remaining in your estate is distributed according to your Will. If you have children that are minors, then the guardian listed in your will be given custody of your kids.

 

 

Will

As I mentioned before, when you die, everything you own becomes part of your estate. If you have a Will, the probate court process will oversee that your estate assets are used to pay off your outstanding debts. Whatever is left remaining in your estate is distributed according to your Will.

 

With a simple Will, you can specify the following:

#1 Executor – person who would be your representative / administrator and works with the court through the probate process with help of an attorney, pays off outstanding debts, and distributes what is left as specified in the Will.

#2 Guardian for your children if they are minor

#3 Trustee – name person who will manage your assets until your children turn 18 and then hands it over to them. If you are not comfortable naming an individual, you could name a bank as a trustee. The guardian could be named as the trustee as well. Whether you name the Guardian and Trustee the same or keep them separate if purely a personal decision.

#4 Name who gets what from your assets

#5 Who gets your pets etc.

 

The best time to have a simple Will written is before 50 years of age. If you are healthy and doing well, a simple Will could take care of almost everything you intend for your family, with exceptions for unique circumstances, of course.

For about $35, you could  create a Will online at Nolo. Nolo has been around for 40 years and has been commended for its excellence by NY Times, USA Today, and Yahoo!

It would be prudent on your part to use Nolo to create a draft of your Will and then consult an estate planning attorney to review it before you finalize it.

Here is an important thing you need to know – a Will does not bypass the probate process. Your estate will still need to go through your state’s probate process – so the assets may be frozen up to six months or a year until the probate procedures are completed. Probate process expenses typically wipe out about 5 to 7 percent of your estate.

 

Living Trust

As stated earlier, a simple Will does not bypass the probate process. So your assets are frozen for anywhere from six months to a year and probate costs wipe out about 5 to 7 percent of your estate. A living trust helps you completely bypass the probate process.

You can set up a living trust and bypass the probate process – this means your beneficiaries get access to your assets faster in most cases rather than waiting for six months or longer without probate court costs.

 

Generally speaking, Living Trust is a more efficient way to distribute your assets than a Will.

Here is the basic outline how you go about it:

#1 Trustor – if you are creating the trust, then you are the trustor; also referred to as Grantor or Setler.

#2 Trustee – if you are going to be managing it, then it is obviously you.

#3 Successor Trustee – this is the person who becomes the trustee when you die and will be the one who distributes your assets. Typically spouse or a responsible son / daughter who is an adult, or a close and trusted friend is named as Successor Trustee.

#4 Name the beneficiaries and what they would receive from your trust.

#5 Name the person who would manage properties for your minor children until they become adults.

#6 Notary Public – once the Living Trust document is prepared, it must be signed in front of a Notary Public.

#7 Transfer – for the trust to go into effect, all the assets / property should be transferred into the name of the trustee using the proper documents – you can transfer property, bank accounts, brokerage accounts etc. into the trust as well by using the right set of documents.

 

For about $55, you could  create a Living Trust at Nolo. The best route to take would be to use Nolo to create a draft of your Living Trust and then consult an estate planning attorney to review it before you finalize it.

For estate planning, I recommend that you go through an attorney. It is always a wise thing to do your own research and get all your basic paperwork draft done by using something like Nolo and then meet with an attorney. This way you are familiar with the process and the money paid to an attorney is well spent.

One of the main things that a Living Trust does not do is allow you to name a guardian for a child. You would still need a Will to do that.

 

Final Remarks

To be clear, a Living Trust is not a replacement for a Will. A Living Trust provides a way to transfer property to your beneficiaries privately bypassing the probate process.

One thing to note is that you are never going to be able to transfer everything you own into your trust – that almost never happens. You may buy something right before you die.

Once the Living Trust is set up, it is good to back it up with a simple pour-over Will. Whatever property you own that wasn’t transferred to your trust before your death will be poured into your Trust. The main thing to note is that the pour-over property must go through the probate process.

As mentioned earlier, if you have minor children, you will need a Will to assign a Guardian. A Living Trust does not allow for assigning Guardians to minors.

Start out with a Simple Will early in your life. As you age and accumulate assets, set up a Living Trust. Finally update your simple Will as necessary and add the pour-over clause to serve as a back up.

 

(I am not an attorney. This post has my thoughts and opinions and must not be considered legal advice. Always consult an estate planning attorney for advice.)

 

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12 thoughts on “Estate Planning – Will and Living Trust”

  1. Thanks for the detailed explanation! I’ve added Nolo to my list of things to do in the coming months.

    As you mentioned, a critical factor is knowing your will might not incorporate everything as it is often a snapshot in time. The pour-over clause is very helpful to know about.

    It never hurts to revisit the will every so often because after a year or two, people might come in and out of your will and the items you write about might have already been sold/distributed/etc.

    1. Hi Matt,

      Welcome to Stretch A Dime! Thank you, I am glad you liked the post and are planning to take actions.

      Yes, if you set up a Living Trust, then a pour-over will help move all your assets outside of your trust into your trust. Anything being poured over into your trust would need to go through the probate process.

      You are right! It is a good idea to review the Will every other year. One more important thing is to ensure that there is only one copy of the signed Will.

  2. This is also on my list along with making sure my wife and I have the right amount of life insurance. Thank you for taking the time to explain the differences, I was not sure myself.

  3. Michael,

    I have 2 questions about the Nolo’s Living Trust purchase.

    1. What am I purchasing when I pay the $59.99? It says that the purchase is valid for up to 1-yr. So does it mean that I create one working with the Nolo wizard, and then download it as a document and safeguard it?

    2. Am I the only one who signs my Living Trust or should there be a witness? And where do I keep this Living Trust document? With an attorney, a friend or a family member?

    Thanks,

    Sharada

    1. Hi Sharada,

      Great questions!

      1. You are purchasing access to Nolo’s Living Trust online forms for a year. It means that you have 1 year time from the date of purchase to finalize your document and download it.

      2. This is a three step process – (a) you complete the living trust forms (b) once form is completed, you sign it in front of a notary, and get it notarized, and (c) start moving your properties into the living trust. You can check with the notary if witnesses need to sign it in front of the notary as well.

      Here is what I would suggest: Purchase the online form – do all the paperwork inputs yourself. Once you are done, then reach out to an attorney via Nolo’s site. Nolo helps you locate an attorney. Then, have the attorney review all your final draft paperwork for accuracy / correctness. Once the attorney has reviewed it, then proceed with getting it executed. You will save hundreds of dollars by using the attorney to do the final review rather than having the attorney start from scratch.

      There should only be one executed original Living Trust document. This should be safe guarded. Then make several copies of the original executed living trust and give it to your beneficiaries.

      You can also look at the FAQ on this page – http://store.nolo.com/products/online-living-trust-nntrus.html#topic_6.

      Let me know if you have any more questions.

      –Michael

      1. Thank you Michael! I am hoping to get this process started in October and possibly be done with it before Thanksgiving 🙂

        sharada

        1. You are welcome, Sharada! Once you get started, you should be able to plow through it. Let me know if I can be of any further help.

          –Michael

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