Everyone wondered how much Michael Jackson had when he died several years ago and who was going to get his money. And more important they asked who wasn’t going to get anything. The reason everyone kept asking those questions was because nobody knew the answers. And the reason nobody knew was because Jackson created a living trust in 2002. As a result, only a small number of people will ever know the truth about his estate. (Read “What is a revocable living trust?” to learn more.) Michael, wherever you are, ya done some good estate planning. When Philip Seymour Hoffman died everybody knew how much he had and who was going to get it. The same is true regarding James Gondolfini. Neither had a trust. They should have taken a few pages out of Mr. Jackson’s book.
Should you consider creating a trust?
A living trust is different from a will. If you use a will, it will get “interpreted” by the courts once you pass away and it will be argued about by the attorneys. This is a process called probate. It is a very costly, lengthy and public process – at least in California. A living trust can help you avoid the cost, time delays and publicity associated with a will. “Wait just a minute,” you say…”Michael Jackson had a will!” That’s true. He did. But he, like most everyone who has a trust, created a “pour-over will.” Its only purpose is to provide for any assets that were mistakenly left out of the trust he created. In Michael’s case, the living trust trustee had all the assets taken care of. Don’t you worry. So when you hear the tabloids claim that so-and-so was left out of some famous person’s will they may be right. But it doesn’t necessarily mean that person was left unprovided for. The trust could still award that person a great deal of money. The only difference is…we’ll never know about it. So a trust provides much greater privacy than a will.
What other benefits does a trust offer?
As I mentioned above, any assets you put into the trust go to the beneficiaries that you name. No lawyer or judge gets involved – and you don’t have to worry about beneficiary forms unless it’s a retirement account. Because of that, it’s much less expensive and takes a lot less time to wind up an estate that has a trust versus an estate that doesn’t. I’m not an attorney and I don’t claim to be an expert on the subject of estate planning. You should seek out your own legal advice. In some cases, a trust can be used to save big bucks on estate taxes too, but we’re not going to get into that subject right now.
So what are the problems with a trust?
First, you have to actually create a trust. That could cost you anywhere between a few hundred dollars to several thousands of dollars. In my mind, it’s could be well worth it. You worked all your life to build up your assets. Doesn’t it make sense to spend some money to protect what you’ve worked so hard to create? Next, you have to move assets into the trust. Keep in mind that a trust is only a shell. It creates the opportunity for you to have the benefits of the trust. In order to realize those benefits you have to rename your assets so that the trust is the owner of the assets. The renaming process is not difficult or costly. Now, before you get into a big fuss, keep in mind that you don’t have to give up control of the assets if you create a trust. By naming yourself the trustee of the trust, you still call the shots. You don’t have to give up anything. You can invest the money, sell the house…do anything you want. Nothing changes.
Another issue can be children.
Some people say that a trust can’t guarantee what happens to minor children if both parents pass away. That is true. But a will doesn’t solve this problem either. As far as I know, there is no written document that you can create that will guarantee what happens to your minor kids. You can make your wishes known by expressing them in the trust or will and the court usually carries them out…but they don’t have to. Sorry about that. One more very important benefit of having a trust is that it usually includes setting up a health power of attorney. This gives legal authority to another human being to make medical decisions for you in the event that you are unable to do so. I can’t see any downside to having a health power of attorney, but keep in mind that you don’t have to set up a trust to get such a document in place. You can usually get your local hospital to give you a blank health power of attorney form and just fill it out. I strongly recommend that everyone consider getting such a document in place – whether or not you set up a trust.
Life Lessons to Take Away
The last lesson we learn from the Michael Jackson, Philip Seymour Hoffman, James Gondolfini School of Estate Planning is that it’s never too soon to take care of this issue. Nobody knows when his or her time is up. If you are responsible for other people or have assets you’d like your family to get without wasting lots of time and even more money, consider setting up a living trust. Have you ever been involved with winding up an estate that did not have a trust? What was it like?