This week is all about trusts: Who needs them? How much do they cost? How much work are they — really? The short answers? The majority of adult Americans need a trust. They cost a few thousand dollars, but this small investment outweighs the devastating financial and emotional costs of probate. And they are not that difficult to set up — really.
Jason Morris, a law partner at Woodburn & Wedge, graciously answered a host of questions on trusts at Hughes Capital’s InvestX educational series. We have edited and released the event video for your viewing pleasure. Here is the “Cliff’s Notes” version of a few of the most popular trust questions & answers, but don’t miss a thing! Watch the full video to get more in-depth information on this important but often-neglected topic.
What’s the difference between a will and a trust, and do you need to have both?
A will is like a crude tool to explain how your assets should be distributed after your death. A trust is a much more precise way to get the same thing done. In theory, if everything was setup correctly with your trust, you would not need a will. However, this is not usually the case, so creating a will is also recommended as a backup measure.
Does the cost to set up a trust depend on the value of your assets?
No, it depends on how complicated you make your distribution plan in terms of who gets what and how they get it. A basic trust will cost about $2,000+ to set up.
How often do you have to update your trust?
You should update your trust after one of these seminal life events: birth, death, divorce, or marriage. An update is also warranted if your financial circumstances have changed; for example, if you’ve fallen into an inheritance, lost assets, or been affected by a changed tax law.
What is the risk of not having a trust?
Your estate will fall into probate, which is a legal process created to distribute the assets of your estate. You want to do everything you can to avoid probate, as it can cost tens of thousands of dollars and create immense emotional turmoil among your remaining relatives.
What are the three metrics Jason uses to determine if someone needs a trust?
- If they live in Nevada and have over $300,000 in assets
- If they are in their 2nd, 3rd, or 4th marriage and have children from a prior relationship
- If they own properties in multiple states
What is the biggest road block for setting up a trust?
For most people, it is simply gathering the correct documents. For young couples, it is deciding who will be the guardian of their children. For others, it is the fear of facing the reality of death. A trust can be set up in as little as one day if the clients come prepared.
Are there any tax advantages to setting up a trust?
Yes, especially in Nevada! As a married couple, if you hold assets in your joint trust, upon the death of one spouse, the surviving spouse receives what is called a full “step-up in basis” for the assets. In layman’s terms, this means that if the couple owned a home in Reno for $200K and it appreciated to $500K at the time of the death of one spouse, the surviving spouse would be able to sell that property at little to no capital gain.
There is also an estate tax savings possibility. A married couple can transfer up to $11 million of their estate without their heirs having to pay taxes on it.
Is it better to keep your assets in a trust until you pass away or gift them before you start pushing up daisies?
If you have highly-appreciated assets, and you’re not going to face the estate tax, do NOT gift your assets before you pass away. This will save your gift recipient massive amounts in taxes. (Not many people face the estate tax. You would have to have over $5.6 million in assets in your estate.)