It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

My wife and I own one home and the deed is in her name.  We recently formed a Revocable Living Trust and I have been pricing lawyers (lawyers are required to do alter deeds in Pennsylvania) to change over the deed into the name of our trust.  I asked my father who he used and he said that he was told not to put real estate, at least not your primary residence, into the name of the trust.  Do you have any idea why this would be?  This goes against what Suze Orman says and that makes me nervous!

I would love to save the legal fees but I don’t want to save a little now for what could be a big headache later. Do you have an opinion or reason for or against putting your primary residence real estate into a revocable living trust?

Thanks.

Jeff R., Pennsylvania

Straightforward Answer: Suze’s probably right for you, but not 100% of the population.

Detailed Explanation:

By and large, I agree with Suze’s advice on this issue. However, in my opinion, her “trusts for everyone” is not for 100% of the population.  Certain people should have a revocable trust.  For example, people in California, people who own assets in states other than the state in which they live, and people who have a step-family should each make the establishment of a revocable living trust a priority.  However, those 20-somethings out there with no family yet are better served saving their precious dollars for a myriad of higher priorities (including an emergency fund, a Roth IRA, and a down payment for a home) more important than optional legal fees.

The principal advantage of the revocable trust is the avoidance of probate (a potentially expensive, lengthy and complicated court process) and the flexibility it provides those who establish the trust.  However, the probate process (costs and delays) varies significantly by state.  So while California is reported as nightmarish, Texas is apparently not too terrible.  So keep that your resident state in mind when balancing the pros and cons of undertaking the effort and expense.

Another consideration is the fact that, in some states, the transition of your home to certain trusts could eliminate your homestead exemption, a designation that saves you serious cash on your real estate taxes. (This may be what your father’s advisor was referencing, Jeff, but I wasn’t there of course and I am not sure of the state laws applicable in Dad’s case.)

Aside from the legal costs incurred in establishing a revocable livin trust, the negatives are fairly inconsequential, especially since everything about a revocable trust, by definition, can be changed. It’s just not the first place to start financial planning.

You: Trusts aren’t for me–they’re for rich people, right?

Many people assume trusts are only for the extremely wealthy. And while there is certainly a place for trusts among the affluent, a revocable living trust makes sense for many people living a typical middle-class lifestyle.

You: How so?

A trust provides for a cleaner passing of your estate—large or small—to your designated beneficiaries.

You: I’m sorry. I speak English.

Sorry. In other words, a trust helps get your money and the things you own to the people you want to get them–and makes less of a mess in the process.

You: But why would I need a trust if I already have a will?

Unlike a will, trust assets avoid the costs and delays related to probate.

You: So it’s one or the other?

Nope. It’s often both.

You: Why would I still need a will if I have a trust?

Although you can pass assets through a trust, you cannot pass children. If you have young children, you need a will to make it clear who should take care of your children (become their guardians) should pass away. Furthermore, a will is used for things that you choose (or forget to choose) to put into your trust.

You: So I need both.

Maybe. Nearly everyone needs a will. Whether you need a trust will depend on several factors including your level of wealth and the complexity of your family situation (married, committed partner, step-children, etc.). That’s why estate planning is one area that often makes sense to talk through with an expert – usually an estate planning attorney.

You: So what now?

Although most people associate trusts with the extremely wealthy, the moral of today’s financial planning education is to be receptive to the idea that a trust may make a bunch of sense for you.

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. . . that your heirs are going to be happy that you did not have one.

You: But I’m in my late twenties and no one is going to confuse me with a Rockefeller. What’s the rush?

Even if you aren’t likely to die with a large sum of money, a will can be critical.

You: Why?

If you have kids, for example, only a will can determine who will be their guardians in the event you pass on. A will, especially when you have either a family or significant assets (let alone both), is essential.

You: What if I die without a will?

If you die without a will (technically called intestate), then the state government determines everything from who takes care of your children to who gets your money (and things). The odds of the government’s decisions gelling precisely with your wishes aren’t too great.

You: Well I don’t agree with most of the decisions the government is making while I’m alive, so I guess that makes sense.

Fair enough. Don’t miss your chance to leave your family in good shape. Get a will.

We’ll talk about trusts and other estate planning documents, like powers of attorneys and health care documents, in the near future. For now, especially if you have kids and/or significant assets, get a will.

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