Money Talk #3 – Revocable Living Trusts

After our Money Talk #2 and reading the fourth chapter in Suze Orman’s The Nine Steps to Financial Freedom, it was discovered that two women in our group had already gone through the steps of setting up revocable living trusts. In Money Talk #3, those two women brought their living trusts to share and we got together and combined brain power to see if we could make sense of what they are, who needs one, and how to go about setting one up.

From what I understand, a living trust is similar to a will, in that it dictates who get what once you die – but it sets up those pathways while you are still living, and thus bypasses probate. Once you have a trust set up, all your assets (bank accounts, personal property, and real estate) should be put into the trust, ie, all bank account should list the trust as the beneficiary. A revocable living trust, means just that: it can be changed or adjusted at any time before you die. There is generally a set fee for setting up a living trust ($500-$3000) and then a minimal transaction fee for subsequent additions, subtractions, or changes.

Probate is one of those words people always spit out of their mouths, like “taxes” and “pus.” Basically, if you own property, in California, and you have a will, when you die, the inheritor of your property will pay set probate fees on the fair market value of the house, just to have it go through the probate court (which basically proves the validity of the will). Probate fees for a house valued at 300,000 can be $15,000 -  double those numbers for a condo in south Orange County. So, even if the house you are passing on only has $30,000 paid off, the person inheriting that house may have to come up with at least that much, just to assume ownership of said house. Because the successive lines of ownership are already established in theliving trust documents, a living trust bypasses the probate system,

One woman in the group had seen a financial advisor since our last meeting; that advisor said that only people with at least $600,000 in assets need bother with a living trust. After a little discussion, the group decided to stick with Orman’s advice instead; get a revocable living trust if you own property. We all live in California and the probate fees, which are set by each individual state, are astronomical.

That said, this means putting out money now to save money later. A revocable living trust can be done with a Nolo book, or through documents found online (like legalzoom); however, Orman and another (trusted) lawyer we consulted both agreed, that it was safer to go through an attorney, or at the very least through a paralegal, especially if there is property involved.

The only thing you might not want to put in a trust is your retirement, which automatically goes to your spouse after your death.

This is all new territory for me and more than a little daunting, but as Orman says, What if you don’t have a will or a trust?

No problem, as long as you don’t die.

So, my next step is to call a paralegal I know in Yucca Valley (Pat Smith) and set up an appointment. I can see that it’s going to cost me a minor fortune to finish reading Orman’s book, if I continue to take all her advice!

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