By Haddon Libby
Only one in three Americans have a will or living trust. Of the two-thirds without these documents, 43% say that procrastination is the reason. Forty percent say that they do not have enough assets for a plan to matter with the rest saying it is too expensive or they do not know how.
If you have a child, you most certainly need a will as you need a legal document outlining what should happen to your offspring in the event both the mother and father are no longer alive. Who will serve as their legal guardian? Who gets the government benefits that your child(ren) will receive?
If you do not have a child or a major asset like a house or 401k, what about your car or bank account? Without a will, a local court decides who gets what. Surely, you know someone better equipped to assist than a county judge.
For those with a home, 401k and/or other assets of value, a will is not enough.
In addition to a will, a Living Trust (aka Revocable Trust) creates a legal structure that protects your most valuable assets whether you die or are incapacitated. With a living trust, you are your own trustee. When you are unable to make those decisions or die, the trust document gives legal instructions on who serves in your absence. Without these pre-set instructions, decisions related to anything that you own can wait months for a court date at which point a judge reviews your will and determines everything. Simply put, a living trust keeps your personal affairs out of the public court system.
The reason why you need a living trust, and a will is that most people forget to put all their assets in the trust. If an asset is not covered by the trust, it is once again exposed to probate court.
For example, a house is not in the trust until you file a quit claim deed with the courts that changes the legal ownership to your living trust. Many people create trusts and then forget to move assets to the trust. If you die and forget to file a quit claim deed, the house is subject to probate court. It is important to note that putting the home in the trust has no impact on a home loan as the loan has priority to the trust.
Many people forget to rename their bank account in the name of their trust. As it relates to personal assets like the coin collection, most will list these assets in the original trust document yet forget to update when assets are added.
Should you name the trust as the beneficiary of your 401k or IRA?
Normally, it is advisable to have these assets go directly to the beneficiary named in the 401k/IRA. If you were to have the assets go to the trust first, the money would be immediately taxed. If the money goes directly to the beneficiary, the beneficiary decides on when to pay the taxes. The beneficiary has up to ten years to withdraw funds from what is now a beneficiary IRA.
One of the reasons many people say that they do not prepare these important documents is the cost of an attorney. While larger estates are better to go with an estate attorney, many folks need a less expensive option.
A few of the better DIY options online are Goodtrust, Trust & Will, Legal Zoom and Quicken WillMaker. Costs for these options can go as low as $139.
Haddon Libby is the Founder and Chief Investment Officer of Winslow Drake Investment Management, a locally-based RIA firm. For more information, please visit www.WinslowDrake.com.
