If you’re getting ready to plan your estate, you may be overwhelmed by the sheer number of options you have to choose from to protect your assets and your family. This guide will explain one of those options, living trusts, for people in Iowa. Below, you’ll find a step-by-step guide to creating a living trust in the Hawkeye State, as well as an overview of the pros and cons of using one. If you are in the midst of estate planning and think you need some help, you might consider finding a financial advisor to serve as your guide. SmartAsset has a free financial advisor matching service that can help you find the advisor who is right for you.
How to Create a Living Trust in Iowa
Here’s how you’ll make a living trust in the Hawkeye State:
- Pick the type of trust you’ll make. Are you single? If so, a single trust is probably for you. If you’re married, you will probably want to create joint trust. You and your partner can both put property into a joint trust, plus you can easily store jointly held property like cars and homes.
- Take inventory of your property. You need to know exactly what you have and what you want to store in the trust. Most of your property is eligible to be stored in the living trust, including stocks and bonds. Gather relevant property documents like certificates of stock ownership and home deeds now as well.
- Pick a trustee. You can name yourself as trustee for now, but you’ll need a successor trustee who will take over when you die. This is the person who will ensure your property is distributed to your beneficiaries according to the trust’s instructions. Also go ahead and decide who you want your beneficiaries to be.
- Draw up the trust, either by yourself using an online program or with the help of a lawyer.
- Sign the trust in front of a notary.
- Fund the trust. This means transferring your assets into the trust. You can do this yourself, though it requires some paperwork. Getting a lawyer may be advisable.
What Is a Living Trust?
Essentially, a living trust is a legal framework established by a document that’s used to store property and assets. It has a trustee who is in charge of managing it and distributing the property stored in it to the designated beneficiaries. The person who creates the trust, also known as the grantor or settlor, can be the trustee, or that person can appoint someone else to serve as trustee.
Two basic types of living trusts exist: revocable living trusts and irrevocable living trusts. Revocable living trusts have flexibility. The grantor can change the trust and remove property as needed. That person still owns the property in the trust and thus pays taxes on it as normal.
Irrevocable living trusts are permanent. The grantor can’t change an irrevocable living trust or remove property from it without express permission from everyone named in the trust. The trust fully owns the property placed in it, and taxes are paid through the trust.
How Much Does It Cost to Create a Living Trust in Iowa?
How much you’ll pay to create a living trust will depend on the method you use. One option is to write the document yourself with the help of an online program. This will probably cost less than a few hundred dollars. You can also hire an attorney to help you, which will likely run you at least $1,000.
Obviously it is cheaper to make the living trust yourself, but DIY estate planning does have some potential pitfalls. You have to spend a lot of time and energy getting all of the details straight. If you don’t think you can do that, you should strongly consider getting a lawyer. Just make sure you hire a lawyer who is a trust specialist rather than simply an estate planner. Also be sure you have a good understanding of your attorney’s fees before you start working together.
Why Get a Living Trust in Iowa?
Generally, Iowans will create a living trust so that their families can avoid dealing with probate court once they’ve died. Probate is a process that most estates go through to establish a will’s validity. However, it can be an invasion of privacy and take a lot of time. Iowa has not adopted the Uniform Probate Code, which in some state serves to simplify the probate process. For this reason, a living trust may be especially useful in Iowa.
There are other reasons to use a living trust though. For instance, if you have a minor child you’d like to leave property to, that property can stay in the trust until the child reaches legal age. Because you’ll appoint a trustee when you create a living trust, it can also help you avoid conservatorship in the event you become incapacitated.
Who Should Get a Living Trust in Iowa?
Common belief is that living trusts are just for the wealthy. That isn’t true, though. Because Iowa has not adopted the Uniform Probate Code, even a person with a relatively small estate might benefit from using a living trust to protect their assets and avoid the probate process. However, Iowa does have a simplified probate process for estates that are worth less than $100,000, so if your estate’s value falls below that threshold a living trust might not be needed.
A living trust does typically cost more to create than a will though. It also has the potential to cause problems after you’ve died as it allows a longer window for potential challenges.
Living Trusts vs. Wills
You’ll still need a will even if you create a living trust. A will allows you to provide instructions for any property that’s not placed inside the trust. Additionally, wills have the following capabilities that living trusts do not:
- Naming an executor
- Providing instructions on how to pay taxes and debts
- Establishing guardianship for children who are minors
- Selecting managers for children’s property
This chart compares wills and living trusts to give you a better understanding of the similarities and differences between the estate planning documents:
|Living Trusts vs. Wills|
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes in Iowa
There is no estate tax in Iowa. However, the federal estate tax applies to estates that are worth more than $11.18 million ($22.36 million for couples).
There is an inheritance tax in Iowa. Your heirs will be responsible for paying this tax after they’ve received their inheritance. The rate they’ll pay depends on the value of the property inherited and the relationship the heir has to the deceased. The maximum rate a beneficiary will pay is 15%.
The Bottom Line
Iowans may want to make a living trust because it will allow them to avoid going to probate court. This is especially valuable in a state like Iowa that has not adopted the Uniform Probate Code to streamline the probate process.
It isn’t terribly difficult to make a living trust, but it does require some attention to detail if you want to do it yourself. For this reason, getting a lawyer to help you through the process may be the best course of action.
Estate Planning Tips
- When you are estate planning, you’re going to want to get the best advice you can. A financial advisor can be hugely helpful in the process, but you want to ensure you find an advisor who suits your needs whether you’re in Iowa, Ohio or Georgia. SmartAsset’s financial advisor matching service can help you do just that. You’ll just need to answer a few questions about your financial situation and needs. Then we will match you with up to three advisors in your area. We have fully vetted all of the advisors on our platform and ensured they don’t have any relevant disclosures. The advisors then will reach out to you to discuss what you’re looking for in an advisor.
- A 401(k) plan is a great way to save for retirement, but it can’t be placed directly into a living trust. There’s a quick fix, though: name your trust as your account’s beneficiary and after you die your benefits will pay into your trust.
- Don’t make the estate planning mistake of thinking you’re too young to plan your estate. Hopefully your plan won’t go into effect for a long time, but you’ll feel better knowing things will be taken care of if the worst happens.
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