ESTATE PLANNING 101

By: Todd Bauman/ Financial Focus

Living Trust vs. The Will: What Do You Need?
The short answer to this question is both. You need both a living trust and a will.
You might think of it like this: the will is your last testament; it’s what you write to communicate your wishes. The Living Trust is the vehicle that carries out those wishes.

Without the vehicle, all you have is the paper, which is why doing only a will might still result in your intentions being carried out, but your entire holdings will have to pass through probate which is an expensive and time-consuming process.

I sometimes joke and say that if you complete a proper living trust, then all you have to write in your Will is, “Being of sound mind and body, I SPENT IT ALL.” While this is funny, it is also somewhat true, because when you set up a trust, you essentially no longer own anything.

You do, however, still get to decide where your money will go. You can also change your mind. If one of your kids comes to Las Vegas to visit, puts a few bucks in the slot machine, and hits megabucks for $30 million, well, then you can take them out of your trust, not because you don’t love them anymore, but because they don’t need your pittance of an estate!

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One of my favorite trust stories from back in the days was a client who got so upset with her two kids, she took them out of her trust and left the entire estate to her cat, Ms. Kitty. She set it up so her neighbor would be paid $500 a month to take care of the cat, and all the rest of the assets were divided among three animal charities equally.

Imagine – she was able to accomplish all of this from beyond the grave. (So kids, if you’re reading this, show respect to your elders!)

Setting Up a Living Trust: What Do You Do?

When you create a living trust, you get to wear three hats:
1. The first hat is the Trustor which means “Great Creator.”
2. The second hat is the Trustee which is the manager
3. And the third is the Beneficiary. You can even write yourself checks from your own living trust!

Once you set up the trust, your life will go on the same way as without the trust, but the one main difference will be that you don’t actually own anything. (Imagine how freeing that could be?) Instead, the trust owns everything.

You also need to designate a backup beneficiary and a backup trustee called successor trustee(s). Their job is to manage your trust if you cannot and or eventually distribute your trust to your beneficiaries when you kick the bucket.
The successor trustee of the trust is also the executor of the will. That means they are the ones who make sure your wishes are carried out, so the court doesn’t have to get involved in your business.

It’s that simple.

The successor trustee or trustees are usually your kids or beneficiaries, but it can also be a friend, an attorney, or a trust company. Your backup beneficiaries can also be anyone you want, either your kids (if you still like them) a charity you value, or the guy writing this article. Just kidding!

Really, it’s all up to you. You can add assets to your trust by opening a new bank account in the name of the trust, or you can buy a beach condo in the name of the trust. If you end up closing the bank account or selling the condo, you just close it or sell it and it’s out of the trust. That’s all you have to do.

The trust uses your Social Security number as the tax ID, which means you file for your taxes the same way as you did before you set up the trust. You can have your tax professional or a qualified financial professional talk to you about any tax savings you might be able to take advantage of if you set up a trust.

For more educational material please visit toddbauman.com or call 702.897.9997
 
~ Todd Bauman, Investment Advisor Representative for Bauman Advisory Group, llc, a registered investment advisory firm, licensed insurance agent for Bauman Financial Group, llc and licensed document preparer for Asset Protection of America.