If You Want To Help Your Heirs Bypass Probate When You Die, Here Are 5 Assets To Avoid Putting In A Living Trust

(MENAFN- News Direct) > If you will, allow us to present the hypothetical case of Pete Moneywise, a married 78-year-old father of three who wants to get his financial affairs in order before he dies.

Though he exists only in the confines of this article, his situation reflects what countless retirement-age people face as they draw up their wills and create their trusts.

“I hate probate,” Pete tells us in an exclusive interview (what else did you expect? We created him).“I went through it when my father died, and my family spent the next year talking to lawyers, trying to get things squared away.”

He shares how the probate process caused tension between his sibling, while also harbouring frustration over one unanswerable question:“Why didn't Dad create a living trust? It would've made things so much simpler.”

Credit Pete for following his own advice: He has set up a living trust. Now, he must decide what, if anything, to leave out of it. He's done the homework for you - here are some considerations as you structure your living trust.

Probate explained: Best not go there

Many folks don't even know what the word“probate” means until they're in the thick of it.

Sometimes - but not always - when a person dies, a legal process is required to validate their will, including:

• Naming an executor to administer the estate if there isn't one already
• Paying off liabilities
• Distributing the remaining assets

It may sound straightforward enough, but the process can sometimes take years, plus there's the piles of paperwork and legal fees. For example , when American model and actress Anna Nicole Smith died in 2007, her will specifically stated that the majority of her estate would go to her son, Daniel. Smith's will was contested by her mother, her former partner and her late husband's estate in a complex legal battle that spanned 20 years.

If you are“of sound mind and body,” then you can make a will - and it's a good idea to do that, so you don't leave your friends and family scrambling to guess at your wishes. If you want an extra layer of security and peace of mind, you can create a revocable living trust. A trust would have helped Pete's family avoid probate, protect their privacy and minimize estate taxes when his father died. A trust is a document that allows you to keep control of your money and property, designating who receives it once you die.

Five items to leave out of a revocable living trust

Vehicles. Whether it's a 1963 Corvette, a Harley chopper or a prop plane, all that's required to pass it on is a simple written instruction to transfer the title to a beneficiary. If it's held in a trust, you could be vulnerable to lawsuits over accidents involving the vehicle.

Annuities and retirement accounts. A trust can turn non-taxed accounts into taxable ones. However, you can make the trust itself the beneficiary, so that these accounts pass directly to your trustees without a CRA agent crashing the wake.

Life insurance. No need to put this in a revocable trust. Simply name your beneficiaries within the policy or create an irrevocable life insurance trust (ILIT) to avoid estate taxes. If you're worried about your loved ones having access to funds to cover your funeral expenses, or other costs and debts immediately after your passing, life insurance can offer a versatile solution to help support your family, providing coverage to potentially replace lost income or settle outstanding debts in the event of your death.

Assets held in other countries. This gets complicated, as you may not be permitted to place international assets in a trust. To find out if it's possible, consult an estate attorney licensed in the country where your international assets are located.

Chequing accounts and savings accounts . If you use these to pay monthly bills, you may run into financial complications unless you're the trustee and granted full control of its assets. There's a much easier route to take: Keep these accounts out of the trust.

And if Pete were real, he'd surely remind you that the information in this article does not constitute legal advice. Talk to a trust lawyer in your state, financial adviser or other professional before making any decisions. Pete's imaginary kids - and your real ones - will be grateful you did.

Sources

1. Willful: 5 Famous Celebrity Wills And What We Can Learn From Them, by Amanda Li

-with files from Melanie Huddart

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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