Creating a living trust

John Ventura, author of "Kiplinger's Estate Planning."

TEXT OF INTERVIEW

Tess Vigeland: And now we're joined again by John Ventura. He's the author of "Kiplinger's Estate Planning." Last week he helped us with writing a will.

Welcome back, John.

John Ventura: Thank you Tess.

Vigeland: Let's go through a living trust and earlier in the series, we talked about the differences between a will and a living trust, but let's review again: What is it? What does it do? How does it work?

Ventura: Well, what it is is a legal entity that's created, a trust, where assets of yours are put into the trust and that actually means that the assets become property of that trust, like for instance, if you have a car or real estate and its transferred in the trust, the actual title of the car and the real estate is changed so that the trust becomes the owner of that property. You designate somebody that's going to be the executor or the trustee of that trust who's going to follow your directions on how those assets are to be managed and what's to happen to them in your lifetime and also what's to happen to them if something happens to you -- when you die.

Vigeland: Who should use these?

Ventura: Anybody with, I think -- and nowadays, this is a lot of people -- anybody who has a home, a car, especially people that are in business for themselves should have this. If they have a certain amount of wealth in stocks, bonds, a considerable amount of property should look at a living trust.

Vigeland: What's the difference between a living trust and a testamentary trust?

Ventura: The living trust is created while you're alive and you're directing things. You can change the trust, you can shut down the trust, you can do a lot of different things while you're alive and that trust is created while you're alive. A testamentary trust is something that is created in your will and an example of that is like in Marilyn Monroe's will, she had a testamentary trust that came into existance that allowed her estate to take care of her mother and a friend during their lifetime and then the corpus of her estate to be given to some other person for a different purpose after they were taken care of.

Vigeland: How do you decide which kind is best for you and your spouse and your family?

Ventura: This is an important issue. You know, there's an instinct to, again, try to do these things yourself or try to find the cheapest way to create a trust. Really, a trust should be created based upon a lot of different factors, not only your assets and what you wan to have done with them but consideration about the people that you want to benefit from that trust. For instance, I'll give you an example of how unique a trust can be. Say that you have a relative, a child, that has medical problems and they're totally disabled and one of the things you want to achieve is that after you die, you want that child to be eligable for benefits from the government to help them in their disability. You don't want your wealth given to them in such a way that would not permit them to receive those benefits. Well, in a trust, you can create a certain kind of trust with the help of an estate attorney that actually allows that person to receive benefits from the government and still get the benefit from your assets as well. You have to have an expert to be able to do that.

Vigeland: I think a lot of people, their first exposure to the idea of a living trust comes from flyers that you see where companies are inviting you to a hotel to sit down and hear about this wonderful way of estate planning. Any cautionary notes there?

Ventura: Yes, absolutely. You know, these companies that invite people in and sell them on the idea of a living trust, you know, a lot of times they make exaggerated claims like this is going to save you taxes or do other things that actually living trusts do not do, and what they do is they try to sell you a pre-packaged living trust that's one type for everybody and unfortunately, I think it's a big disservice for the people that buy into that. Every person's life is different, every person's estate, property, the heirs that they want to benefit are all different, so the living trust has to be customized to the individual to make sure that their goals are achieved and you can't do that

Vigeland: John Ventura is the author of "Kiplinger's Estate Planning" and John, we'll talk to you again next week.

Ventura: Thanks Tess.

Vigeland: Next week: power of attorney.

Keep sending us your estate planning questions. John will help answer them at the end of our series.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

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