Drafting Your Own Living Trust Is Doable, but Legal Help Is Handy
Question: I am an engineer retiring in about two years. I have some stocks and a condominium, all amounting to about $400,000. I have several questions about living trusts. What are the pros and cons? Do you need a lawyer to set up a living trust? Could a lawyer take your money and vanish? Can you recommend a lawyer in the Los Angeles area, preferably in Santa Clarita or the San Fernando Valley? Can I make sure that my second wife, whom I am divorcing, gets no more than $10,000 if I die before the divorce is final? I’ve enclosed a self-addressed, stamped envelope for your reply.
Answer: How thoughtful of you. Unfortunately, you have a lot more questions than Money Talk has room, time or inclination to answer. Also, Money Talk tends to get cranky when people ignore the note at the bottom of the column advising that personal responses aren’t possible.
You’d best pick up copies of Denis Clifford’s books “Plan Your Estate” and “Make Your Own Living Trust.” Most of your questions will be answered therein. The publisher, Nolo Press, also offers software for creating your own living trust if you decide not to use a lawyer. Given your suspicion of the breed, that might be best for both you and the legal profession.
Most people, however, will discover it’s nice to have a lawyer’s expertise, as estate planning is complicated and ever-changing. Most lawyers charge between $1,200 and $3,500 to create a typical estate plan that includes a living trust.
Whether a living trust is worth the set-up fee depends on how much you have, where you live and how much hassle you want to spare your heirs.
Living trusts, as you know, allow your estate to avoid probate, the court process otherwise used to identify your heirs, pay your creditors and distribute your estate. Probate is relatively painless in some states, but long and expensive in others--California and New York being two of the most notorious.
In California, estates worth more than $100,000 are typically subject to probate. Probate fees and expenses can eat up 4% of the gross value of your estate (the gross value is the total value, not including any debts you might owe). Four percent of your $400,000 estate would be about $16,000, so the investment in a living trust might make sense if you live in the Golden State and want to spare your heirs the cost of probate. (For a rough estimate of probate in other states, check out the estate and probate calculator at https://www.schwab.com.)
What you don’t want to do is get involved with one of the many so-called living trust mills. These outfits, which offer cheap, boilerplate trusts, are really in the business of selling investments such as annuities. Visit https://www.help4srs.org to find out more about how they operate.
Your local bar association can offer referrals if you decide to get a lawyer. You might ask the bar to recommend only the nonvanishing kind.
New IRA Distribution Rules Not That Simple
Question: I have a question regarding my individual retirement account. Since I have to start taking the money out at 70 1/2, what is the percentage rate per year? Is it based on your health when you start taking the money out or is there a set percentage for everyone? My guess is that it comes out to be about 5% per year, so you can keep your money in the fund for a long time, hopefully!
Answer: Your optimism is charming, but a little misguided.
Not only does Uncle Sam not care about your health, he’s also not particularly interested in making the required distribution formula as easy as you had hoped. It’s true that the IRS earlier this year drastically simplified the process to determine how much you need to withdraw, but you’ll still need to do some calculations based on your life expectancy and that of your IRA beneficiary.
You can find information about the new distribution rules at the IRS Web site, https://www.irs.gov. You also can order a $7 booklet from tax research firm CCH Inc. called “Retirement Savings Plans: Taking Advantage of the New Minimum Distribution Rules.” To order call (800) 248-3248 or visit https://tax.cch.com/onlinestore.
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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at moneytalk@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
