WOMEN AND MONEY
Suze Orman: Planning a worry-free will and trust
You need a will or trust. If you pass away “intestate.” That is, you leave no documentation to explain how your assets should be handled. Without a will or trust, the disposition of your estate will be carried out according to your state’s laws.
That means your loved ones could be shortchanged or left with nothing — all because you failed to deal with these fairly simple inheritance issues.
1. Create and fund a living revocable trust. As well-intentioned as they are, wills can leave your beneficiaries with lots of logistical headaches. Even if you spell out who gets what in a will, you haven’t officially transferred any of the assets to those heirs.
When you die with just a will, your beneficiaries will most likely see it wind its way through a court process known as probate. It can take months, or even years, and cost thousands of dollars in legal fees.
To avoid this, set up a living revocable trust. The transition of your assets to your beneficiaries is easy once you have this document in place. Here’s how it works: You create a living trust in your name. As the creator of the trust, you are known, first of all, as the “trustor.” Next, since these are your assets and you want to have control over them, you will also be designated as the “trustee.” Then, since you own all these assets and they are for your benefit while you are alive, you are also the “beneficiary.”
But you will name others as beneficiaries of the trust, too. These are the people who will get your assets after you have died, and they are known as “successor beneficiaries.” To make the trust valid you have to “fund” the trust. This means you (or a lawyer) must legally transfer your assets— your home, your investments, etc. — into the trust. When you pass away, you’ll make life much easier for your loved ones. The trust is simply passed to them at the time of your death. There’s no need for a court review. All your beneficiary needs is a death certificate and a copy of your trust that outlines your specific wishes.
2. Add an “incapacity clause” to your trust. A trust that includes an “incapacity clause” allows someone you have appointed to handle your affairs if you aren’t able to speak up for yourself.
Sudden illness can befall any of us, no matter how young we are. Financial power of attorney isn’t the answer. The reality is that many financial powers of attorney become null and void the day you fall ill, unless you have included an incapacity clause in the document. Moreover, financial powers of attorney can easily be revoked. Financial institutions are notorious sticklers for which powers of attorney they will honor. When you insert the incapacity clause into your trust, you designate a successor trustee to step in when needed. The person you appoint as the successor trustee can be anyone you trust to handle your affairs.
3. “Joint Tenancy With Right of Survivorship” is no substitute. You may be thinking that you don’t need a trust to handle the inheritance of your home, because you and your spouse or partner already have it set up as Joint Tenancy With Right of Survivorship (JTWROS).
A JTWROS simply spells out that the surviving spouse or partner inherits the deceased partner’s share of the home. A JTWROS says nothing about what happens when the surviving partner dies or sells the home. With a JTWROS, the surviving partner becomes the sole owner with no strings attached. So if you die, your spouse will own the house outright. And if, in the case of a second marriage, her will says the house is to go to her children upon her death, then guess what? You just disinherited your own children, and there is nothing they can do about it.
With a trust, you can make it clear that your surviving spouse can stay in the home, but you also can clearly lay down inheritance rules for when the home is eventually sold.
4. Don’t forget the will. I want to make a pitch for adding a will as a complement to your trust. That’s because the only items covered by a trust are those that have been “funded” — specifically added to the trust. But it’s possible, of course, to acquire assets after setting up your trust and, through oversight or sudden death, simply fail to have everything added in at the time you pass away. When that happens, having a backup comes in mighty handy.
