This is the third article in my series about Trusts.
In my first two articles about trusts we covered the basics of Trusts, “We’re All Going to Die, But Your Money Doesn’t Have To,” and the difference between Wills and Probate, “Wills – What You Never, Ever Want to Do!” If you haven’t read those articles, I suggest that you read those first.
There’s a cliche in finance that goes, “if you don’t tell your money were to go, you’ll wonder where it went.” I’m here to tell you, if you don’t spend the time setting up where your money goes after you pass away, the people that you love the most will wonder where it all went.
Most people tell themselves that one day they’ll get around to putting a Trust together, but never get around to it because, they don’t know where to start, it’s scary doing something they’ve never done before, and don’t know where to start…. don’t be one of those people!
Here’s what you need to know about different types of Trusts to protect yourself and the people you care about.
What you need to know about Trusts
I’m going to show you the basics you need to know about what to do to set up a Trusts.
- The two most common Trust you need to know about
- What type of Trust is right for you?
- The average cost with setting up a trust.
- Common mistakes when setting up a trust.
Let’s get started.
Most Common Types of Trusts
There are two types of trusts you need to know about when starting out with estate planning, Revocable Trusts and Irrevocable Trusts. Are there more Trusts than these? Yes, the other Trusts you may have heard of are: Asset Protection Trusts, Charitable Remainder Trusts, or Testamentary Trusts. I’ve dealt with all of these, but the only ones you need to worry about when you’re starting out are Revocable and Irrevocable Trusts.
Revocable Trusts
A Revocable Trust is a trust that you can change or cancel at any time. This type of Trust is often used to avoid probate and also to help during times of illness or if you get disabled. Since you can change or cancel a Revocable Trust at any time, they are easy to manage.
You can add or remove beneficiaries as you see fit. You can change the assets or money you give your beneficiary when you pass away (i.e., if one of your beneficiaries piss you off, you can kick them out.) If you have young children, a Revocable Trust helps you put guardianship in place for your kids, so you can control who takes care of them if something happens to you, instead of the state (and as your kids grow older, you can change the who the guardian is.) Also, most Revocable Trusts don’t pay tax.
Since Revocable Trusts are so flexible, they are the #1 most created Trust people set up when creating their first Trust.
Irrevocable Trusts
An irrevocable trust is a trust that you cannot change or cancel once it is created, unless you get permission from the beneficiaries or a court order. This means that Irrevocable Trusts are not flexible. This type of trust is often used to protect assets from creditors and lawsuits. Also, Irrevocable Trusts usually pay tax at the Trust Tax Rate, which are much higher than individual tax rates. All Revocable Trusts become Irrevocable when the Grantor (creator) passes away.
Which Type of Trust is Right for You?
As I mentioned earlier, the #1 most common Trust people set up are Revocable Trusts. However, to be sure it will ultimately depend on your individual circumstances. If you’re concerned about probate, guardianship, and how your assets will be divided for your beneficiaries, a revocable trust is the way to go. If you are concerned about creditors or lawsuits, an irrevocable trust may be a better option. It’s best to consult with an Estate Planning Attorney first.
Who Can Help Setup a Trust?
A trust should be set up by an estate planning attorney. There are some DIY Living Trust websites out there, but I don’t recommend them. Trust and Estate Planning Law is determined by the State you live in (not by the Federal government). In order to make sure your Trust is set up the right way, you must go to an Estate Planning Attorney licensed in your state.
What Are the Costs to Setup a Trust?
The average cost of setting up a basic Living Trust in Nevada ranges from $2,000 to $5,000. The cost depends on the caliber of the Attorney, how long they’ve been in business, and how thorough they are.
Keep in mind that Estate Planning Attorneys are just like everyone else. Some suck. Many are average. And very few are pristine. The great ones know there worth, and they charge accordingly.
Here are two Estate Planning Attorneys I have worked with in Nevada, that I recommend:
- Whitney Short, Esq. at Short and Stevens Law
- Heidi Freeman, Esq. at Nevada Trust Lawyers
Note: I do not receive any referral or sponsorship fee for recommending these Estate Planning Attorneys. I am recommending them based on the experience I’ve had working with both of them over many years in Nevada.