Hello and welcome back! So far, we’ve discussed the importance of purchasing a life insurance policy and in addition to that I recommend setting up a Will as it dictates who gets left what in the event of death.
Ms. Orman says, “a Will is not enough to protect you and your loved ones.”
She says, of all the must have documents, A Revocable Living Trust is the most powerful, for if set up correctly, it can take care of everything for you , both while you’re alive and after your death.
Today, we are going to discuss “Why you need a Revocable Living Trust, what it means to fund it and what the difference is between a Revocable Living Trust and a Will.
Terms to know:
Revocable– once you set up the trust, you can change it as much as you want. You remain in control. Nothing is set in cement.
Living: It works for you while you’re alive, unlike a will, which comes into effect only when you die. The terms and wishes expressed in your trust can also continue to apply after you have died.
Trust- the name of the document
Settlor– the person who sets up the trust
Trustee– the person or persons who have signing authority over every asset inside the trust. The trustee decides everything that happens to the money in the trust. If you are single, you can be the sole trustee or you and a spouse can be joint trustees.
Successor Trustee– the person who takes over the management/ control of the trust when the trustee dies or is no longer capable of making decisions.
Beneficiary– the person who is to benefit from the assets that are in the trust. Typically, while you are alive you remain the beneficiary.
Remainder Beneficiary– the person who “inherits” the assets in the trust when you die. (Put another way, whatever remains in the trust is what this person will get.) In your trust, you can have multiple remainder beneficiaries; you may leave specific assets to specific people.
A Revocable Living Trust V.S. A Will:
-A Will states who is to inherit what upon your death. A will can also stipulate who becomes the legal guardian of your children upon the event that you and their father perishes.
-A Will only goes into effect when you die. In the event that you are merely incapacitated, a will won’t help you one bit
-When you die with only a will, It does not make it easy to pass the assets to your heirs. It must be authenticated by a judge before it is considered to be valid. This happens via a court procedure called a “probate.” The probate process takes time and money.
-The wishes you lay out in a will can be overridden by other documents.
Funding the Trust:
Once you create the trust you will need to take steps to change the title (ownership) of all property to be held in the trust from your individual name (or if owned jointly, from both your names) to the name of the trust. This process is called funding the trust and if you don’t do this, you basically have empty words on paper often called an “empty trust”. Therefore, you must change or have a lawyer change all the titles of your bank accounts, stock account, real estate, and all major assets into the title of the trust. Once an asset’s title is transferred to the trust, you are guaranteed that the assets will be managed and disbursed exactly as you have laid out in your document. It’s not fun but it prevents headaches later.
What goes in the trust?
-Savings (Bank and Credit Union accounts)
-Outstanding loans you have made that have yet to be repaired
What does NOT go in the trust?
-401k and IRA accounts. If you are married—it’s better to make your spouse the beneficiary. If you are single, you can make the trust the beneficiary.
Why your trust must include an incapacity clause:
*Reminder: If set up correctly, a trust is your answer to making sure your assets and financial affairs will be properly handled both upon your death and in the event that you become incapable of handling matters for yourself while you’re still alive.
An incapacity clause is a critical feature of a trust. This section of your trust will grant your successor trustee—the person you designate—legal authority to handle your affairs should you become incapacitated. A good trust will also designate a backup trustee in case your successor trustee is incapable of fulfilling his or her responsibility as trustee.
We’ve discussed a lot of important information here today. I challenge you to consider setting up a Revocable Living Trust as anything can happen to you at any given moment and we want our family/loved ones to be protected in the case that something does happen.
Stay Ambitious, Stay Motivated!
All knowledge presented here today was taken from Suze Orman’s “Women and Money” book.