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Last month, I laid down a challenge for my Marriage, Kids and Money friends to get their last will and testament in place. Since my wife and I had gotten our wills set up last year, my end of the challenge was to investigate if my family needed a living trust.
Here is what I learned:
What is a Living Trust?
LegalZoom tells me a living trust is “a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a “successor trustee.”
Translated into Andy-ese … I transfer ownership of all of my assets to a trust before I die so my kids and my wife are already set to receive everything with no questions asked.
What is the difference between a Living Trust and a Will?
With a will, you designate where you’ll be buried, who your kids are going to go to, and where your assets will go. The living trust only deals with your assets.
The biggest advantage of having a Living Trust over a Will is that you avoid probate court.
— Andy Hill (@AndyHillMKM) June 30, 2017
What is probate court?
After someone dies, probate court helps distribute a person’s assets so that all of their debts are paid and the folks who inherit assets are given their share.
Why would you want to avoid probate court?
There are fees associated with probate court and some people don’t want their families to deal with the hassle of the courts after they’ve died.
How much are the probate fees?
It completely depends on where you live. I checked with my county and found out they would charge $987.50 (+ $175 application fee) for probate if I were to die. A total of $1,162.50.
Sounds like a lot of money, right? Even with that $1,100, I still don’t think we need a living trust right now.
Here are 5 Reasons I Feel We Don’t Need a Living Trust Right Now
- The living trust process requires you to transfer all of your assets (home, bank accounts, IRAs, 401ks, Brokerage Accounts, Cars) out of your name and into the trust’s name .
- If there are any changes in your life (selling your car/home) then you need to transfer the asset out of the trust so you can sell it. What if you want to get a new house or car? Then that needs to be transferred into the trust. Yikes!
- Constantly making sure the living trust is updated sounds extremely cumbersome and ripe for some major mistakes. The natural reaction would be to get a lawyer to set it up and help you maintain it.
- I guarantee that the costs to work with a lawyer on the initial set up and maintenance with changes over the next 60 years of our lives (we’re 35 by the way) will be more than the $1,100 in probate fees I mentioned previously.
I’m Not Bonkers Rich
- Since my probate fees are so low, I’m not too worried about the overall cost right now.
- If I become a decamillionaire (sweet!), then I will be more concerned about the probate court fees. At this point in my mid-30’s, I’m comfortable with covering those costs from our emergency fund.
I Don’t Have a Complicated Financial Situation
- I’m just a typical dude with one house, one bank account, one 401k, a car and a Roth IRA. I don’t own any businesses (well, there’s this one, but if I die, the show and blog are dying too. Zoey has some great YouTube videos if you still want to be entertained by a member of the Hill Family).
- I don’t own out-of-state properties.
- Based on some research (AKA watching a bunch of videos of lawyers on YouTube), I feel like our situation is pretty straightforward.
- Right now, all of these assets (minus the car) are either designated to my wife Nicole or they have her set as the co-owner.
Taxes Become More Difficult
- According to another Legal Zoom article I was reading, if your assets in your trust earn income (brokerage account, etc), then you have to file a separate tax return for your trust as well!
- Cha-ching! That sounds like a much more complicated tax filing process in my opinion. That would mean I’d need to get a tax advisor to support me with that nuanced process. There’s some additional money spent right there.
The list goes on, but I’ll stop at 5 reasons.
For Me, A Will Will Do
At this point in my mid-30’s, I feel setting up a will is good enough for me and my family. I will caveat this one BIG TIME in saying that I’m not a lawyer, I’m not a tax advisor or a CPA. From my humble internet research, it appears that a living trust is not for me.
Do you have a Will or a Living Trust?
Am I wrong about needing one in my 30’s?