by Archie M. Richards, Jr., CFP^®
July 26, 2004

After you die, do you want the members of your family to fight over your estate? Do you want money to go to people at inopportune times? Or a big chunk of your estate to disappear in costs and taxes?

I didn't think so. Here are the methods of passing property to others. See how they stack up:

• Do nothing. This is the most common practice and the least desirable.

• Use a joint tenancy. Upon your death, the other person owns the entire property, regardless of what your will says. Probate is avoided. And if the joint owner is your spouse, federal estate taxes are also avoided, because transfers to a spouse are not subject to the tax. But the spouse's subsequent death may cause more tax and expense than if the estates had been better planned.

• You can give your money away. But you lose control, and if you end up needing more money than anticipated, you're left holding the bag.

• You can name beneficiaries in the contracts for retirement plans, life insurance and annuity policies, and U.S. savings bonds. These assets pass to the named beneficiaries regardless of what your will says. But if your circumstances change, such as you have a new spouse, and you neglect to change the beneficiaries named in those contracts, your estate could have a big fight on its hands.

• You can and should write a will to dispose of the property you own outright at your death. But the property's disposition is subject to the jurisdiction of a probate judge. Probate is a time-consuming process. Years of delay may cause the beneficiaries to express anger at a family member you've named as executor, creating discord. The probate process is also expensive, and your will becomes a public document, available for anyone to read. If you own land in two different states, your estate will have to endure two probate procedures, a double pain.

The answer is a revocable living trust. This is the best estate-planning measure. "Revocable" means you can amend or get rid of the trust. "Living" means you set it up while you're alive and legally competent. "Trust" means that someone (the trustee) holds property for beneficiaries. Initially, you serve as trustee and beneficiary. Everything you own is registered in the name of the trust, such as The Sally Smith Living Trust dated August 15, 2004. You can do whatever you like with the trust property.

When you become disabled or incompetent, the person you've named as successor trustee in the trust document steps in to manage the property for your benefit. A living trust is the most effective way for an incompetent and his property to be cared for.

Probate applies to the property of individuals that have died. But after death, the trust lives on. The trust property therefore avoids jurisdiction of the probate court - a big advantage.

The trust is made the beneficiary of your pension arrangements. After your death, the property remains in trust or is disposed of however you've specified. Drafted by an experienced estate-planning attorney, the trust provides for tax savings and all manner of contingencies. Your spouse and your children, for example, might receive income from the trust, but to save taxes, they might receive principal only to satisfy certain specified needs. If a granddaughter is disabled, funds remain in trust for her benefit, but not in such a way as to cause disability benefits to terminate.

Of all the methods of transferring property, a revocable living trust is the best.