Prefer to Avoid Living Trust? Maybe You Need to Consider the Alternatives

Q: I am married with two children, and I am concerned what will happen to our estate if my wife and I both died in an accident. Do we really need a living trust to avoid going to probate court before our minor children can inherit any assets?

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A: Probably yes.

Probably, because chances are you wouldn’t want to use the more common ways to avoid probate, since minor children are involved. Holding the title to your house as joint tenants, for example, would avoid having your home pass through probate, but it’s unlikely you want to share title with an 8-year-old. Your wife might get a little cranky about being shut out, and Junior could very well decide to sell his half of the house when he turns 18 (and yes, technically he could do that).

Pay-on-death accounts and life insurance proceeds also pass free of probate. But I’m guessing you’d like some adult supervision of the money. You can set up custodial arrangements for each account or life insurance policy, but that can be cumbersome.

Right now, you’re playing the odds that you won’t need a living trust. That’s understandable--it is unlikely you will both die at once. Besides, there are worse things in the world than probate. Although it’s expensive and protracted in California, the probate process does ensure that there is some court supervision over how your estate is settled.

Still, many smart couples decide to invest the $1,000 or so in getting a living trust drawn up so that they have some say in how their estate is handled without the expense of probate court. As a bonus, a properly designed living trust can also take care of your affairs should both of you become incapacitated. Say you’re both in a car wreck and subsequently can’t attend to your money or your kids; your living trust could kick in and allow someone else to look after both.

Social Security Disability Q; In a recent column, you answered a letter from a 29-year-old single female earning $50,000 per year who was concerned about long-term disability insurance. In your response, you failed to address the disability insurance provided by Social Security, which would start six months after the onset of the disability.

This is a very important consideration and might be just what she needs to cover her needs when combined with the 67% of salary from the employer-provided insurance.

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A: She shouldn’t count on Social Security disability, and neither should anyone else.

As I said in that column, Social Security provides benefits only for the most severely disabled, and it’s tough to qualify. Ask anyone who’s tried. Only about 1 out of 3 who apply end up getting any benefits.

That’s because Social Security disability requires you to be so bad off that you can’t perform any job. Read that again--any job. That includes selling tickets, flipping hamburgers or (shudder) telemarketing.

An individual disability policy, on the other hand, can be designed so that it will pay benefits if you simply can’t perform your current job. That’s a huge difference, especially for the highly skilled.

Such “own occupation” policies can be expensive, which is why many people buy a policy that provides coverage for two years if they can’t perform their current job, after which the policy switches to “any occupation,” meaning they then only get benefits if they can’t perform any job.

Disability insurance is complicated, which is why I recommend picking up a copy of “How to Insure Your Income” (Silver Lake Publishing), talking to some savvy insurance agents familiar with disability and shopping around for price and features.

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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.