When you are paid on a biweekly basis, it may make sense to create a biweekly budget. A biweekly budget is perfect for those who get paid every other week. You can structure your budget around your paychecks so you don’t miss anything with your money, and you can find out how here!

There are many monthly budgets to choose from, but it may get confusing if you get paid a few times in the month. Or perhaps you are simply looking to budget by each paycheck to have better control of your finances.

Personally, I’ve found using this budget game-changing. I have more control over my finances than ever before by budgeting this way. The process is not complex as long as you plan things out and set aside some time to prepare it.

If you are curious, I’ve got you covered with this guide on creating a biweekly budget. You’ll also find links to some excellent biweekly budget templates to help you start!

What is a biweekly budget?

A biweekly budget is a budget that considers a person getting paid every 14 days. So you will usually get a first paycheck and then a second paycheck in the same month (with some exceptions depending on the month e.g. some months will have three pay checks).

Some other pay schedules are getting paid monthly, weekly, and semi-monthly.

The difference between bi-weekly and semi-monthly pay schedules

The biweekly and semi-monthly pay schedules are slightly different as the total number of paychecks per year varies. The key difference is that you get 26 biweekly paychecks versus 24 semi-month paychecks.

That said, creating a bi-weekly plan gives you control over your finances because you can allocate specific expenses to specific paycheck each month.

How does a biweekly budget work?

With a biweekly budget, you will have ten months where you collect two checks and two months where you collect three checks. 

Even though your paychecks may be different in some months, many of your fixed expenses will stay the same. When you set up a biweekly budget, you’ll need to your expenses and income and lay it out for each month.

When I first started bi-weekly budgeting, I have to make sure I was properly distributing my income to specific expenses and goals each pay period. It was a little tricky at first to figure out how to do this but after a few weeks, I came up with an approach that works for me.

I essentially assigned bills that had due dates in the first two weeks of the month to one paycheck, and bills with due dates in the last two weeks of the month to the other paycheck. When it came to my savings goals, I decided on specific dates each month that I would like to “pay myself” and I split those payments according to when I would get paid.

Pros and cons

There are a few things to consider when setting up a biweekly budget. Some people find it makes life easier to budget on a weekly or monthly basis.

However, you can budget based on how you are getting paid. Here are some pros and cons of the biweekly budget.

Pros of a biweekly budget

1. Takes into account the timing of your paycheck and the pay period.
2. Using a bi-weekly expense planner allows you to plan and save up for the unique event.
3. The months with extra paychecks allow more room to pay off debt or save.
4. It is much easier to keep track of bill payments and times with the budget in place.

Cons of a biweekly budget

1. The initial input and setup take time. 
2. You may have to move around bill payment times to make it work.
3. There is a chance of not using the third paycheck appropriately.

How to create a biweekly budget

Now that we have the basics down let’s look at the steps in creating a biweekly budget. You want to ensure you can easily cover all of your essentials.

That means your rent (or mortgage), utilities, groceries, etc. Here are the steps to follow:

Step 1: Set up a calendar

To start creating your biweekly budget, you’ll need to set up a budget calendar with your bill due dates, pay dates, savings plans, and other important dates.

Having a calendar gives you a visual view of everything that will occur during the month, this way you can plan each bi-weekly check you get accordingly. That means that you can manage your first and second paychecks without worrying between them.

You can do this on a spreadsheet to have a visual view of everything that will occur during the month.

Step 2: Organize your expenses according to your bi-weekly pay

Once you have your calendar set up, ask yourself if you need to adjust the due dates on certain bills so they are more evenly spaced. Base this on when you get your bi-weekly pay so you don’t get behind on bills.

Look at when your mortgage, utility bills, and credit cards are due. Think about all the monthly expenses you pay out of your account.

The goal is to be able to cover the expenses that fall in each 14-day window with your bi-weekly paycheck. Split your expenses up into different categories to help you get this right.

Utility companies and other sources of your recurring bills can be quite accommodating when it comes to moving bill payment dates. Don’t be shy to call and ask for your due dates to be moved.

If you want to be sure you haven’t missed anything, it can be helpful to review your last few months of bank statements.

Step 3: Don’t forget your variable expenses

Once you have all your recurring expenses in place, go back through the month and examine any other potential variable or one-time expenses that could arise, such as entertainment costs.

For example, are there birthdays this month? Do you have to make an extra payment toward a larger debt? Are you planning a vacation or do you have a back to school shopping list?

Determine where to best fit them in your bi-weekly budget template. You should plan to review your variable and one-time expenses ahead of time every month.

If you want some extra help here, there are plenty of tools available. Some people find that using an expense tracker or debt tracker works for them, for example.

Step 4: Create a buffer

I personally think that this is the most important step for a biweekly budget. When all of the consistent and variable expenses are in place, go back through the budget and add a buffer.

The buffer should be for emergency money and big upcoming costs that would fall under sinking funds. Having this extra money is a huge help if/when an unexpected or big expense should come up. If you don’t use the buffer, keep it saved.

Step 5: Start tracking your budget

Now that your budget is in place, the last thing to do is start tracking. You must keep track of all spending and savings so that your personal budget is accurate. Keeping a spending journal can help!

There will be things that come up that are not part of your plan. These can be extra income or extra expenses, so make sure you track them all.

So, set a bi-weekly reminder to check in on your budget and make your bill payments and savings account transfers every two weeks. You might want to use a budget binder or download a PDF budget template to help you.

Biweekly budgeting tips

As you can see, the process of setting up a biweekly budget is not all that difficult. It takes an hour or so at the beginning of the month to plan out any expenses and income for that month. If you have mostly recurring expenses, it can take even less time.

Having this head start and being aware of the month ahead can help you ensure you are financially stable. Here are some great tips for biweekly budgeting.

1. Make sure you write everything down.
2. Use an app on your phone to track spending if necessary.
3. If your bill due dates are not working out, call companies and ask to change the due dates.
4. Save up for one month of expenses so that you will always know you have the month covered should something come up.

What to do when you have a third paycheck

Ready for some good news? Getting your third paycheck in a month will feel like a bonus if you follow your biweekly budget correctly. There are so many great ways to use that paycheck, but here are a few of the best options.

1. Pay down your debt.
2. Put some money away towards a big bill coming next month.
3. Plan ahead and grow your emergency fund.
4. Save for a vacation or a significant home expense that may be coming up.
5. Use it to put aside an entire month of expenses as a backup.

Best biweekly budget template options

Although you can always create your own biweekly budget templates, sometimes it is much easier to just print one. There are many different styles out there, so you can find one that matches your preferences.

1. Biweekly budget planner from The Savvy Mama
2. 101 Planners free budget template 
3. Templates free biweekly budget templates 
4. Vertex biweekly budget template

You can try each bi-weekly budget template. Or create a biweekly budget planner using a binder and make space for your bills, bank statements, and other financial documents.

Expert tip: Save a “fun” fund too

We’ve gone over how to cover your basic expenses but that said you make money so that you can enjoy your life. When you’re creating your budget, be sure to set aside some cash for the fun things in your life too. 

Alternatively, you might want to use your third paycheck for this from time to time. For example, I have found that this extra “bonus” is useful when covering trips away, parties, and special occasions. 

How much should I save bi-weekly?

If you can, it’s a great idea to set a goal of saving 10% to 20% from each paycheck when you are budgeting on a bi-weekly basis.

Of course, there will be times when saving that amount is out of reach. If that is the case, keep it as a goal for the future and instead you can aim to save at least 5% of your income each paycheck.

Is a bi-weekly budget different from a semi-monthly budget?

Yes, a bi-weekly budget and a semi-monthly budget are different. With a bi-weekly budget, you are planning your finances based on getting paid every 2 weeks (14 days). In a 12 month period would get paid 26 times.

Whereas with a semi-monthly budget, your plans will be based on getting paid twice a month. And in a twelve month period, you’ll get paid 24 times.

With a bi-weekly budget you will get an extra paycheck twice a year. So it’s important to look at the calendar and determine which months you’ll get paid three times so you can properly plan for this money! I like to use this pay to accelerate my savings goals or plan for big events like family trips.

Articles related to budgeting and saving

If you found this article helpful for managing your budget, check out these other ideas!

• Make A Weekly Savings Plan (Or Bi-Weekly Savings Plan) That Works!
• Are Biweekly Mortgage Payments A Good Idea?
• How To Do A 6 Month Savings Challenge!
• The 50-30-20 Rule: How It Works + A 50 30 20 Budget Template

Try the biweekly budget to manage your finances!

Now that you have everything you need to develop a biweekly budget, set aside time on your calendar to get started. We know the process of putting this all into place can be a bit daunting, but it is indeed the right path to becoming fiscally responsible and successful.

It’s hard to see exactly where your paycheck is going until you put it down on paper. Putting together a budget is eye-opening and will change how you think about day-to-day spending.

If you are paid biweekly, then a biweekly budget planner can be the best method for your finances. The more specific these plans can be, the better your chance for success.

The key is to manage your money wisely so you don’t have to live paycheck to paycheck. Learn more about ditching debt, saving money, and building wealth with our blog and completely free financial courses!

The post How To Create A Biweekly Budget In 5 Simple Steps appeared first on Clever Girl Finance.

We all love cash value, so it seems like a no-brainer to have cash value life insurance. But how does cash value life insurance work, and is it a good idea? Get a better understanding of this type of life insurance and whether it’s the best choice for you or not.

Well, let’s talk through it. Even though the importance of life insurance cannot be overstated, a cash value policy may not be what you expect. It’s likely a lot more expensive than you thought, too.

In this article, we’ll go over what cash value life insurance is and how it works. We’ll also explore cash value life insurance pros and cons.

Our goal is to help you understand it so you can make the best life insurance decision for yourself!

What is cash value life insurance?

It’s more than basic life insurance coverage. It’s a type of life insurance policy with a savings account attached to it, called the cash value component. As you pay premiums, you fill your cash value account.

Most cash value insurance policies are permanent life insurance. Permanent insurance means the policy lasts for your lifetime or as long as you pay the premiums.

How does cash value life insurance work?

In general, cash value policies work like any other life insurance policy. You pay a premium to the insurance company. In exchange, your loved ones receive the death benefit payout from the life insurance company when you die.

In addition, it allows you to save in a cash value account. The insurance company deposits a portion of your premium payments into your cash value account.

Whether through interest or investments, the hope is that your cash value will grow over time, which can be a motivation for saving money. The cash value decreases the insurance company’s risk because they use the money to offset the death benefit when they pay it out.

Or, you can use the cash value as extra cash savings for yourself.

How you build cash value

Insurance companies use your premium payments for three things:

• The cost of guaranteeing the death benefit.
• Administrative costs of the insurance company.
• Your cash value account.

You only receive a portion of your premium amount in your cash value account. The exact portion of your premium that goes toward cash value will vary depending on the type of policy you have.

How your cash value grows

Cash value grows differently for different types of permanent policies.

In addition to your premium contributions, your cash value account might grow in a few ways:

• Interest earnings from fixed interest rates
• Interest earnings tied to an index
• Earnings from investments in securities

The amount you can earn in a cash value life insurance varies based on a few factors, most importantly, what type of policy you choose.

Modified endowment contracts (MEC)

Surprisingly, you can put too much money into your cash value account. Overfunding your cash value account above legal tax limits turns your policy into a modified endowment contract, or MEC.

A MEC still works like life insurance on the insurance side—your beneficiaries will receive the death benefit when you die.

However, MECs come with tax implications. While you receive tax benefits from cash value life insurance, MECs do not.

Once the IRS relabels your policy as an MEC, there’s no way to convert it back to regular life insurance.

Types of cash value life insurance

You have a few options when choosing an insurance policy. Knowing the features of each can help you decide.

Whole life insurance

What about a term vs whole life insurance policy? A whole life insurance policy is different from a term policy in that it lasts your entire life.

It has the same premium for the policy’s life, and the insurance company sets a set rate of return on the cash value. Most policyholders earn around 1.5% for guaranteed cash value, claims Consumer Reports.

Universal life insurance

Universal life policies are more complicated than whole life because you have flexibility with the premiums and coverage amounts. As long as you cover the minimum premium for the death benefit, you can pay more or just the minimum amount each month.

If you have extra money, you can pay it toward your universal policy and invest it in the cash value. You can also have your premiums deducted from the cash value when your cash value reaches a certain point.

Variable life insurance

If you want more than a ‘savings account’ for your life insurance’s cash portion, variable life offers investment options, such as stocks and bonds. It’s riskier because there’s no guarantee your cash value will appreciate (it may decrease). But the reward is often much more significant.

Expert tip: Use the cash you earn

Your beneficiaries typically won’t get any cash value left in your policy when you pass away. As you get older, you might want to use more of your cash value so less goes back to the insurance company.

Whatever you do, make these funds part of your financial planning process so you know what you’re going to do with the money.

Cash value life insurance versus term life insurance

Cash value life insurance is not the same as term life insurance. They have the same premise – a death benefit that pays your loved ones when you die, but that’s it.

Term life insurance doesn’t have a cash value and will lapse after a certain timeframe.

For example, a 10-year term policy expires after ten years. If you’re alive (that’s a good thing), the policy expires.

Finding the best term life insurance is great if you want coverage without a lot of expense, but it doesn’t grow your savings.

Some insurance companies allow you to convert it to a permanent policy or renew the term. You’ll also likely pay more for coverage, though.

Pros and cons

There are benefits of life insurance with cash value and downsides. Understanding both sides helps you choose the right policy.

Let’s take a closer look at cash value life insurance pros and cons to see if it’s right for you.

Pros of cash value life insurance

• It lasts for your lifetime. As long as you pay your premiums, your beneficiaries will receive the insurance’s death benefit.
• You may use the cash value to cover your premiums after years of paying premiums.
• You can borrow from the cash value and/or withdraw funds from it to use while you’re alive.
• The money grows tax-deferred. You don’t incur a tax liability until you withdraw the earnings.

Cons of cash value life insurance

• The premiums on a cash value life insurance policy are much higher than term life insurance policies.
• The fees can be high. You may find less costly ways to invest the extra money you pay toward your life insurance.
• Cash value policies are often hard to understand. Some people buy them without fully understanding what they’re buying or investing in.

Who should and shouldn’t apply for cash value life insurance?

Like any financial decision, whether this insurance is right for you or not depends on your situation. Young families usually stick with term life insurance policies. They are predictable and cover families when they have the least money available for a crisis, such as death.

A term policy can cover events such as a mortgage, children going to college, or providing a surviving spouse with income.

Cash value policies are more expensive, but they provide another outlet for investing. If you’ve maxed out your retirement contributions in your 401K and/or IRA, a cash value policy may make sense. 

You should also make sure you’re secure in all other areas of your financial life. 

Do you have an emergency fund? Have you paid off all consumer debt? If you have disposable income you’re looking to invest, then a cash value policy may make sense.

5 Ways to access your cash value life insurance

You can’t walk up to an ATM and withdraw the cash value of your life insurance policy. You may only access the cash in one of these five ways:

1. Take out a loan against the cash value

Once you accumulate a cash value, you can take out a loan. The insurance company determines the terms, and yes, you’ll pay interest. Even though you pay this interest to yourself, it’s still a cost. 

If you don’t pay the loan back, the insurance company decreases the death benefit dollar-for-dollar when you die.

2. Make a partial withdrawal

While you can’t get the money from an ATM, you can partially withdraw some of your policy’s cash value. It leaves your policy intact but decreases the total death benefit.

3. Surrender the policy

If you’ve decided you no longer want the policy, you can surrender it. You receive the cash value, and the policy ends.

However, you won’t get the full amount of your cash value account. The actual amount you’ll receive is called the cash surrender value. The surrender value is your cash value balance minus taxes or fees.

Most insurance companies charge surrender fees to cancel policies before your death. You’ll also need to cover any income tax liabilities incurred from withdrawing earnings.

Your loved ones no longer have a death benefit, but you also don’t have to pay premiums.

4. Sell your policy for a life insurance settlement

Some brokers offer a life insurance settlement, which means they offer to settle your life insurance for a lesser amount. If your policy is worth $100,000, they’ll offer a payoff that’s less than $100,000. Settling may provide you with more than surrendering the policy, but if you settle for more than the total premiums paid, you’ll owe taxes on the capital gains.

5. Pay the premium with the cash value

If your cash value is high enough, you may use the cash to pay your premiums on your permanent life insurance policy. You may find this helpful if you’re struggling financially.

What can you do with the cash?

The cash is yours to do what you want. The life insurance company doesn’t tell you how to use it or approve your intended use.

Remember, when you take the cash, you decrease or surrender the death benefit. If you intend to leave your loved ones with a legacy, support a loved one financially, or want to help your family with your estate costs, invest the cash somewhere. They’ll be able to access it when you die.

What life insurance is best for cash value?

Any permanent life insurance policy that has a cash value component can help you build savings.

In general, whole life policies tend to grow slower than universal life or variable life policies due to the fixed interest earnings.

The best earning potential comes from a variable life insurance policy.

However, your money is not guaranteed in a variable life policy and could lose value.

Is cash value whole life insurance worth it?

Whole life insurance could be worth it, depending on your life insurance goals. A whole life policy is often expensive.

But, whole life coverage generally guarantees your cash value earnings thanks to fixed interest rates. If you’re looking for guaranteed growth of your cash value savings, whole life might be worth it.

Can you cash out your cash value life insurance policy?

Yes, there are a couple of ways to cash out your life insurance policy. The first is to take a loan against your cash value balance. You’ll pay interest on the loan, and if you don’t pay it back before your death, the insurance company will decrease your death benefit.

You may also withdraw cash from the account, which also lowers the death benefit. Finally, you can surrender your policy.

However, this means your policy is no longer in effect, and you’ll generally have to pay a surrender fee and taxes on the money.

Articles related to life insurance

If you found this article informative, you’ll love reading these other posts about various types of life insurance!

• The Importance Of Life Insurance For Your Finances
• Term Life Insurance VS Whole Life Insurance? What’s Best for You?
• What Is Credit Life Insurance?
• Do You Really Need A Million Dollar Life Insurance Policy?

Cash value life policies are worth considering but you should think about all your options

A cash value policy has its benefits, but only in certain situations. If you haven’t maxed out your tax-advantaged retirement or you still have debts, investing your money in those areas may provide a greater return on your investment.

You may wonder, “Do I need a financial advisor?” Consider talking with one about your options (and understand how does cash value life insurance work) before finding a policy. They can help you better understand your options and get life insurance quotes to meet your needs.

The post How Does Cash Value Life Insurance Work? appeared first on Clever Girl Finance.

A living trust gives your estate direction, ensuring your loved ones handle it as you wish. Trusts can also help seamlessly pass the trust’s assets to your heirs by avoiding probate court. While trusts seem confusing and complex, they aren’t as complicated as they sound. With the right help, you, too, can open a trust and protect your assets, and this guide will give you a crash course on living trusts as an estate planning tool.

The basics of a living trust

If you’re wondering, “How does a living trust work?” a trust is a legal document that holds your assets, such as real estate, cars, and investments. It helps protect your assets during your lifetime and beyond. The trust takes ownership of the property, but you generally still retain control over your assets.

Your trust documents also help outline your wishes for your assets after you pass away. You can use the trust to specify exactly how you want your assets distributed.

When you die, your trustee is responsible for distributing the assets to your named beneficiaries according to the terms of the trust.

Two types of living trusts

You have two options when setting up a living trust agreement: a revocable or an irrevocable living trust. Let’s explore how each type works and why you might choose one over the other.

Irrevocable living trust

An irrevocable living trust is a sort of trust that can’t be changed.

Even as grantor or trustee of the trust, you cannot change or terminate it—without exemption. Once an irrevocable trust is in place, you give up the ability to modify it.

Thus, irrevocable trusts are less common for obvious reasons.

Why people opt for irrevocable trusts over a revocable trusts

But why would someone opt for an irrevocable trust over a revocable one?

There are three main reasons:

• You want to minimize estate taxes through a life insurance trust or annuity trust.
• You have a disability and need to shelter assets and income to avoid losing federal benefits.
• You want to protect your assets from creditors.

Revocable living trust

The revocable living trust gives you—as the grantor and named trustee—the power to make changes while the trust is in effect.

A revocable trust is the most common type because it allows you to maintain control of your assets. As trustee, you can amend trust directives as needed, including dissolving the trust if necessary.

Just know making changes or canceling a revocable trust isn’t easy. You’ll still have to deal with a ton of paperwork and jump through administrative hoops. Still, it is technically possible to change or cancel a revocable trust.

How does a living trust work?

When you open a trust, you transfer your assets into the trust. You no longer ‘own’ the assets once you put them in the trust – the trust owns them.

However, you can retain control of your assets by naming yourself a trustee. Most people also name a successor trustee should they die or have the incapacity to manage the trust.

The successor trustee’s job is to act on your behalf and distribute the assets per your instructions when you die. You can also name specific conditions the beneficiaries must meet before receiving their inheritance.

For example, you might require that your children reach a certain age or complete college to receive funds.

Setting up a living trust: How to get started

Many people skip this because they’re unsure how to get started. Although the process is tedious, it’s often not overly complicated.

Your trust can be ready to go in six steps:

1. Contacting estate attorneys
2. Selecting assets for your trust
3. Picking a successor trustee
4. Naming beneficiaries
5. Signing the trust agreement
6. Transferring assets into trust ownership

1. Contact an estate planning attorney

Can you set up a living trust by yourself? Technically, yes.

However, your trust needs to follow certain state laws and regulations regarding trusts. Without extensive legal knowledge, setting up a trust on your own could be a bad idea.

Instead, get in touch with an estate planning attorney who specializes in living trusts. An attorney may come with a larger price tag than drafting the trust on your own, but you’ll know it’s done right.

In addition, attorneys can provide valuable insight into the formation of your trust. Your attorney will make clear to you the potential impact of setting up your trust a certain way. They’ll also help you work through other aspects of your estate planning checklist.

For example, your attorney can help you determine if a revocable or irrevocable trust makes the most sense for your needs.

2. Determine the assets for your trust

The next step to creating your trust is to determine what assets you want in the trust. Common assets you might put into your trust include:

• Real estate, such as real estate investments or your home
• Financial accounts like non-active bank accounts or non-retirement brokerage accounts
• Non-qualified Annuities
• Life insurance (read about the importance of life insurance)
• High-value personal items such as fine art or expensive jewelry

You shouldn’t put retirement accounts in your trust. Adding retirement accounts to a trust requires withdrawing the funds from the accounts.

A withdrawal will likely result in income taxes on the funds. The better option is to name your trust as a beneficiary on the retirement account.

3. Choose a successor trustee

Your successor trustee is the individual who takes over as trustee after your death. Choosing a successor is an important step because this person will eventually take control of your assets through the trust.

Your family situation will play a big role in your successor trustee.

For example, parents of minor children generally choose their preferred guardians. If the parent dies while the children are still young, the guardian gets access to assets or funds to help cover the living expenses of the children.

4. Name your beneficiaries

The beneficiaries of your trust are those who will benefit or receive the assets owned by the trust.

You can choose any beneficiaries you want, including friends, family, or even charities. Think about who you want your assets to go to, especially if you’re funding an irrevocable trust.

Many people list their children as beneficiaries to help build generational wealth.

5. Sign the living trust document

Signing is the easiest part of the process.

Once your lawyer has drafted the trust documents, you can review them and make changes as needed. When you’re ready, you’ll sign the trust in the presence of a notary public. Your attorney or one of their associates will likely be licensed as a notary.

6. Transfer assets and fund the trust

Funding the trust isn’t as simple as making a bank transfer or signing a form. You must rename all assets in the trust’s name to officially put them in the trust.

This process generally requires a fair amount of paperwork and might take a while to complete. (Learning how to declutter paperwork prior to this can be helpful!)

Say you want to put your house in your trust, for example. You’ll need to make the trust the new owner by changing the property’s title. Doing this requires signing a new deed for the trust property.

Additionally, you’ll need to notify your city or county of the change, which could require a small title transfer fee.

Pros of a living trust

A living trust is one of the most useful estate planning tools to protect your assets. Let’s look at some of the benefits.

Avoids probate

If you die without a trust, your estate goes into probate. The probate process is the legal process of reading and executing a will. The probate process also appoints an executor of your estate to distribute your assets.

Probate can delay when your beneficiaries receive their inheritance. It can also be time-consuming for the executor, who must oversee everything.

A living will, however, bypasses the probate process.

Avoids anyone contesting your wishes

Even the most close-knit families can get ugly when inheritance is involved, and family financial problems could cause concerns. Challenging a will is common, but a trust lowers the risk.

Contesting a will involves petitioning the probate court. Trusts skip probate, so it’s more difficult to contest. Challengers of a trust must prove you were not of sound mind—or were coerced—into setting up the trust and funding it, in addition to a couple of other reasons, claims Smart Asset.

Trusts create privacy

The probate process becomes part of the public record. That means anyone could see how much money you’re giving to heirs or what assets you have to give.

On the other hand, trusts aren’t public records. No one will know how much you left to your beneficiaries. Taking this route also reduces the risk of someone targeting your family or loved ones based on their inheritance.

Cons of a living trust

There are plenty of reasons a living trust is a good idea, but are there downsides?

As with most things, yes, there are drawbacks.

Trusts are costly

There’s no way around it: a trust is going to cost a chunk of change to set up. You’ll need to hire an estate lawyer to help you draft and fund your trust. You might also have to pay title transfer fees to move assets into your trust’s name.

All in all, you can expect to pay between $1500-2500 in the USA, according to Contracts Counsel, to draft a living trust. The more complicated your needs or assets, the more you may have to pay.

Inconvenient to make changes

A revocable living trust may offer some flexibility, but it’s still difficult—and likely expensive—to make changes. You’ll need to contact your lawyer to sell, add, or modify assets in the trust.

Even something like refinancing your home requires your attorney to remove the asset from the trust before you can make changes to your mortgage. Then, you’ll also have to pay your attorney to re-title the asset back into the trust.

Administrative work is hefty

Setting up a trust takes a lot of consideration. You have to determine what assets to put into the trust, who will be your successor trustee, and who will be your beneficiaries.

Additionally, putting your assets into a trust means renaming the assets. For many things like your house, bank accounts, and investments, it means a lot of paperwork and potentially some fees.

Expert tip: Consider a joint trust if you’re married

Married couples can set up an individual living trust for each spouse or create a joint trust with shared assets.

Joint trusts are less complicated to set up and could make it easier for a surviving spouse to access assets.

When you are putting your financial goals and financial affairs in order, make sure to consider this simpler approach.

Who are living trusts best for?

A living trust is best for anyone who wants control over their estate. It’s not just about managing who receives your inheritance upon your death, but rather managing your estate to avoid probate and put a 3rd party in charge of certain assets until all beneficiaries satisfy any conditions you set.

Suppose you’re concerned about your estate going through probate. If your estate goes through probate, it may take more time for beneficiaries to receive their inheritance. Not to mention that anyone could potentially challenge your estate.

On the other hand, a living trust could prevent your estate from going to probate at all.

Living will and trust: What’s the difference?

A living will and trust both have to do with your estate, but the similarities end there. The importance of a will should not be overlooked, but a living trust is equally important.

Here’s what you must know about the differences between a living will and trust:

A last will goes into effect when you die

A will doesn’t control your assets when you’re alive, even if you’re unable to make your own decisions. A living trust, on the other hand, manages your assets from the moment you open and fund the trust.

You are the trustee while you’re alive (if you choose to be), and your successor trustee takes over when you cannot manage your estate.

A will typically goes through probate

Even a will with specific instructions for distributing assets will likely go through probate. The probate process typically holds up the distribution of the estate. Probate also usually has court fees and costs associated with the process.

A living trust doesn’t have to go through the probate process.

A living will is a public record, whereas a trust is not

Since the probate process is public, your will is public. This lets anyone see what you’re leaving to your beneficiaries.

A living trust is a completely private agreement. Anyone not listed in the trust would not have access to the documents.

What is the point of a living trust?

The point of a living trust is to improve the efficiency of distributing your assets after your death. Trusts avoid probate, making it easier for your trustee to distribute assets to your beneficiaries according to your wishes.

What is the downside to a living trust?

The biggest downside of a living trust is the cost and the paperwork involved in creating it. Complicated trusts may cost several thousands of dollars to create. You also have to go through the paperwork and time to retitle your assets in the trust’s name.

What is the primary purpose of a living trust?

The primary purpose of a trust is to create a smooth distribution of your assets upon your death.

Additionally, trusts give you the ability to specify how assets are to be used.

For example, you might require your minor children to turn a certain age before they receive ownership of assets in the trust. It helps to teach financial literacy for kids to your children so they have a good foundation for handling money in the future.

Articles related to trusts and estate planning

If you now have a better understanding of trusts and what they do, read these articles next for more information!

• What Is A Revocable Trust And How Does It Work?
• What Is An Irrevocable Beneficiary?
• The Importance Of Estate Planning And Having A Will In Your 30s
• Key Steps To Get Your Financial House In Order Now

Next steps: Create your own living trust

A living trust helps organize and protect your estate. Understanding the process of funding and managing the trust is important. Having a trust ensures you can determine what happens with your estate when you’re alive and have peace of mind that your successor will handle it how you planned upon your passing.

Make sure you have a good financial planning process for each part of your finances, including retirement and investing. Also, consider other important aspects of your finances that will help you prepare for the future, such as saving an emergency fund.

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