Kay Brooks

Ask the Experts: Do I need to set up a trust?

Published: Wednesday, Nov. 21, 2012 - 12:00 am | Page 7B

It's one of the most basic questions in financial planning: Do I need a trust or not?

This week, Sacramento attorney Kay Brooks answers that question. To see more of her "Ask the Experts" advice or that of our other local experts on taxes, investing or personal finances, go to: www.sacbee. com/personalfinanceblog.

When is it best to set up a trust? My assets are four cars, household goods (but no house), less than $100,000 in savings, and a federal retirement account. What type of trust would you recommend, and how do I select a firm to set one up? Thank you.

Different types of trusts are used for different purposes, but for basic estate planning, most people use a revocable living trust. This type of trust can be changed or revoked by the person creating it during his or her lifetime.

After death, the trust becomes irrevocable and can no longer be changed. At that point, the trust's assets will be distributed as set forth by the trust itself.

When you create a revocable living trust, it is very important to retitle your assets in the name of the trust. For example, you would change the title on your savings account to your name, such as "Bob Jones, as Trustee of the Bob Jones Trust" and the same for your house if you owned one. Otherwise, court proceedings may be required at death to move assets into the trust's name.

Revocable living trusts are typically used for the following reasons: (1) to avoid probate costs; (2) for privacy; (3) to plan for beneficiaries who need assistance managing their assets; and (4) for incapacity planning.

In California, probate can be hugely expensive, based on fees to both your executor and attorney that start at 4 percent of probate assets up to $100,000, 3 percent for assets up to $200,000, etc.

However, no probate is required if a person's assets do not exceed $150,000. Not included in that amount are vehicles, as well as assets that are joint tenancy accounts or that have a beneficiary, such as an IRA.

In your case, it sounds like your savings account and household goods are below the $150,000 limit. Provided that you remember to name beneficiaries (with alternates) on your federal retirement account, your estate would not have to go through the full probate process, even without a revocable trust. You could simply execute a will that states who should receive your assets.

Another reason people like trusts is that they are more private than probates. Probate proceedings are public, so anyone can find out about your estate plan and your assets. With a trust, the only people who receive a copy are your heirs, other beneficiaries and the trustee.

People also use trusts if they have family members or other beneficiaries who need assistance from a trustee in managing assets, including minor children, young adult children or others who have difficulty managing money.

Finally, revocable trusts provide a mechanism to name someone to assist with your financial affairs when needed and to handle your affairs after your death.

If you are interested in setting up a trust, I recommend consulting an experienced estate planning attorney. If you haven't worked with an attorney before, ask advisers, friends and family for referrals. The California State Bar lists licensed attorneys on its website, www.calbar.ca.gov, where you can search by location or type of legal practice.

If you contact a lawyer who is not taking new clients or whose fees are out of your price range, ask if he or she can refer you to another local lawyer. Your goal is to work with an attorney who is knowledgeable, competent, responsive and trustworthy.

Remember, you also should create power of attorney forms (for health care and for general financial matters), in case you ever become incapacitated.

– Compiled by Claudia Buck

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