Trust in trusts
“I would never leave anything to my kids when I die,” Cohen says in a hard hitter right off the bat.
Instead, the lawyer says she'd put everything — including her life insurance and bank accounts — in a living trust, or revocable living trust, and she'd name her kids as the beneficiaries of that trust.
A living trust allows you to manage your assets in your own name for as long as you’re able. The word “revocable” means the trust can be undone or changed.
You’ll have to name a “successor trustee” — which can be a family member, friend, a private fiduciary or even a bank — who can take over managing your assets in case of reduced mental faculties or death.
One of the most common misconceptions is that you need to have a lot of money to set up a trust — but that's “simply not true,” says Cohen.
“Trusts are for the middle class, too,” she states in the caption of her April TikTok video, which has been viewed more than two million times and racked up over 2,800 comments.
She explains in a separate clip how setting up a trust is generally for the benefit of somebody else.
“The question you need to ask yourself is: What experience do I want the people who I love to have to go through in order to become owners of the assets I want to transfer to them?”
Transfer property wisely
The California-based attorney says she'd never add her children’s names to the deed of her primary residence as a way to avoid probate court.
She explains why in another video: “If you add your child’s name to your property at some point during your life, the first thing that may happen is a property tax reassessment. If your property has appreciated, now your property will get reassessed at that date and you may need to pay more property taxes.”
There's another reason to avoid this approach. When you die and your children want to eventually sell your home, if you've signed it over to them, they'll lose the option of a step-up in basis — where the value of your property is adjusted from its initial cost basis to its current market value upon your death.
“You will have caused them to pay more in capital gains taxes than they would have needed to if they would have inherited that property at your death,” says Cohen.
She adds that, due to Medicaid recovery, she'd never put her home in her children's names. That's because when a Medicaid beneficiary dies, the value of their estate — including property, savings and retirement accounts — can be used to repay the government for the costs of nursing facility services, home and community-based services and related hospital and prescription drug services.
To avoid that potential mess, Cohen says she would put her home in a Medicaid asset protection trust — designed to protect assets from being counted for Medicaid eligibility — and, again, name her kids as the beneficiaries of that trust.
Avoid probate at all costs
The crux of the matter is that Cohen “would never let [her] kids go through probate court.”
The probate process, which validates the will and administers a deceased person’s estate, can be both the most expensive and the most emotionally challenging of all financial matters relating to death.
Cohen describes probate court as “the process where you file a lawsuit against yourself, with your own money, for the benefit of your creditors.”
Instead, she'd set up a living trust which avoids probate court so her family doesn’t have to “spend unnecessary time, energy and money going to court to own the assets that I want them to inherit.”
If you don’t care about the experience of your loved ones after your death, then maybe a trust isn’t for you, Cohen points out.
“It’s whether you want them to have to go to court or you want it to all be laid out very easy for them to take ownership.”
Even with the best intentions, figuring this out on your own can be tricky. You can get advice from an estate lawyer or a financial planner about who can best protect your assets and help you set your loved ones up for success.
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