June 25, 2008

What is a Living Trust and do I need one?

If you watch Suze Orman at all you may have heard her recommend that people have a Living Trust. I'm not familiar with a Living Trust other than from hearing Suze talk about it. Suze says its good to help avoid probate. So what exactly is a living Trust and whats probate for that matter?

Living Trusts are a legal entity to put your assets in a trust while you are alive. It acts like a will does to handle transfer of your assets after your death. You put your assets into the trust but retain control of them as the trust owner. Living Trusts avoid probate and also can be used to manage your assets if you are incapacitated.

Probate is the legal process by which an estate is legally settled. After someone passes away their estate goes into probate. The probate process includes: filing the will with the state, inventorying assets, setting debts of the estate, paying court costs and attorney fees and then finally paying out estate to the heirs. Probate generally requires the help of a lawyer so it can be costly.

Generally you only put large assets such as real estate into a living trust. A Living Trust does NOT replace a will. You still need a will to assign guardianship to children and handle personal property and other assets.

I found this article at NOLO : Why You May Not Need a Living Trust. Basically in summary they say that if you are young (under 55), don't have large assets and married then you are less likely to really need a Living Trust.

Contrary to Suze, Dave Ramsey says that a legal trust isn't necessary He says living trusts are costly, cumbersome and really only useful for wealthy people and he concludes "..a will is really all you need."

There are other ways to avoid probate. Joint tenancy for real estate will automatically transfer ownership to remaining owners on deed and Pay on death accounts for bank accounts will name a beneficiary for the account.

Personally given the situation of my wife and I, I think we can do fine without a living trust. We can avoid most hassle with probate simply by putting our property in both our names and naming beneficiaries for our accounts.

Here are some additional resources:

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