Estate Planning, Guardianship, Legacy, Probate, Real Estate, Trusts, Wealth

A Simple Explanation of Trusts & How They Work

As an attorney, I have the distinct advantage in being able to confuse the ever-living day lights out of people.

Most people (understandably) do not study the law. So, when most people hear a legal term like “revocable living trust,” they assume that only the super-smart and wealthy need a trust.

But thankfully you’re not like most people.

At least not after you read today’s newsletter.

I would actually argue that revocable living trusts are for most middle and upper class Americans.

But what are revocable living trusts, and how can they benefit you?

A revocable living trust is simply a legal entity that has special rules that benefit you. Similar to a company.

A trust will hold your assets (such as your home, cars, bank accounts, etc.), and when you pass away, your assets will get split up according to the rules in the trust.

But what happens if you try to split up your assets without a trust? What about through a will? What if you have nothing at all to determine how to split up your assets?

There is a strong possibility that you will need to go through probate if you do not have a trust.

Probate, as I have discussed a lot on this newsletter, is no good. Almost no one should want to go through probate.

More specifically, probate is the process of going before a judge who specializes in estate planning laws. That judge will simply determine how to split up your assets and who is in charge of splitting everything up.

Sounds not too bad, huh? Wrong.

Probate costs a lot on in legal fees. Like multiple of thousands of dollars. And it takes several months to complete. During that time, your assets are frozen in place and cannot go to your loved ones.

That’s right. Your loved ones will have to pay out of pocket to cover legal fees, funeral costs, unpaid taxes and mortgages, debts, etc. while we wait for our incredibly slow judicial system to put some stamps on a piece of paper.

Probate is almost always an incredible for families to have to go through upon a loved one’s passing: not only do your loved ones have to mourn your passing, but they must navigate a complicated legal framework that costs a lot of time and money.

The whole process is quite taxing for everyone involved.

A trust, however, never dies. It lives on even when you are not alive any more. And a living entity never has to go through probate.

This means that if your assets are held in a trust, the asset gets split up the day after you pass away immediately without any additional expenses.

The only time I really see someone not needing a trust would be if their assets outside their family home are worth less than ~$75k, they want a judge to play referee to potential future family drama, or they don’t care that their loved ones will have to go through a lot once they pass.

And that’s about it. And I think most people are not in those categories.