Creating a living trust sounds like a sophisticated and savvy way to spare your loved ones a lot of expense and hassles in probate court. But you should learn about a few things that are often left unsaid. Then you will realize that living trusts may not always be worth the hype.
One of the most common reasons a person sets up a living trust is to save their loved ones some money. However, it could cost as much as $3,000 to set up a trust. What if you could protect assets from probate with a method that costs less? Take, for example, your home. If you own it jointly, it would go directly to the co-owner, not into probate. The same can be said for things like pensions and life insurance policies that designate a beneficiary. Even bank accounts can be arranged to be payable-on-death to a specific recipient. Deeds, stocks and automobile titles are examples of assets that can be set up to be transferred-on-death to a designated heir. Examine your assets and see if you really need a living trust.
A Bad Rap
Weigh against the cost of creating a trust what actually might be involved in probate. You could discover that probate has gotten a bad rap. It might not be as complex as you think. For instance, Tennessee offers simplified procedures for small estates that enter probate. Think of them as shortcuts.
For small Tennessee estates, an executor files an affidavit with the probate court requesting the simplified procedures. The affidavit lists the assets involved, as well as any debt left by the deceased. Submitted with the affidavit is a copy of the death certificate that has been certified along with a written agreement, signed by all heirs, that bond is not necessary. If satisfied, the court can then authorize the executor to distribute the assets.
What Is A Small Estate?
To qualify as a small estate in Tennessee, the property must not have a value in excess of $50,000. Property that is held jointly, having a designated survivor as recipient upon death, would not be included in the small estate’s value.
Will Or Trust
A will is a recognized legal document by which a testator expresses how they want their property distributed after their death. In addition to naming heirs, a will also designates an executor to be the personal representative who settles the conditions of the will. If the value of assets to be distributed exceeds the limits determined by Tennessee as defining a small estate, then probate is required. A simple formula will determine whether or not you need a trust or can have your needs met with a will. Calculate the value of your assets. Subtract the value of assets that are jointly owned, payable-on-death or transfer-on-death. If your final sum is less than $50,000, a will should suffice.
Avoid The Unseen
Creating a trust means designating a trustee. No one can predict the future. What if your trustee becomes incapacitated? Heirs then must come together to have the trustee declared incompetent in order to access the estate. What may have originally inspired the creation of a trust, saving your loved ones hardship and hassle, could end up becoming an emotional and legal minefield.
Trying to provide for your loved ones after your death is noble. However, by creating a trust you may inadvertently cause hardship if a loved one needs to qualify for Medicaid. When qualifying for eligibility, Medicaid counts the assets of a living trust.
There are appropriate circumstances when a trust would be the advisable choice. Disinheriting an heir, or leaving behind significantly different sums among children, can all create conditions for a will to be challenged. For professional advice on managing your assets and creating a plan for the future, please contact us. We are here to help you achieve peace of mind through sound financial management.