Proper estate planning is a matter of trust
June 21st, 2023 by admin
My recent column about estate planning documents generated several questions and comments about revocable trusts (sometimes called “living” trusts). Here is a quick summary of how these trusts work. Since the federal estate tax exemption is so high now — over $11 million per person — trusts are not just for citizens of great wealth.
Why is it called a living trust? The concept comes from Latin and means roughly “while you are living.” It is admittedly a clunky phrase. (Which is why lawyers and other professionals should refrain from using it because it confuses others.)
Advantages
- Several of your financial assets will pass to the family members directly by right of survivorship designations. You can easily transfer many of your other assets into a trust, which can avoid the necessity of filing for a full estate administration when you die. The expenses of a full probate estate often well exceed the cost of setting up a revocable trust and retitling certain assets into the trust. (Your real estate being the main example.)
- It speeds up the estate settlement process. A full estate administration can take up to a year, whereas a transfer of assets in trust or with beneficiary designations may take only a matter of weeks, often with limited assistance by an attorney.
- It avoids many time/convenience challenges for the executor of the estate, who is often one of your children or a family member who may live out of state or is otherwise employed full time.
Trusts can protect the estate from some court challenges, which may involve whether the decedent was competent when documents were prepared. - It protects your privacy. In a probate estate, your assets which pass through probate are a matter of public record.
Disadvantages
- Your attorney’s fees for preparing a trust are typically more than what you would spend for a will. Depending on what assets you have and how they are titled, your net cost without a trust may be less by executing a will and having a smaller estate with more limited expenses.
- If you have no real estate and the bulk of your assets are in financial accounts which allow you to transfer assets at death by right of survivorship or by so-called payable on death accounts, these assets will likely NOT be included in your probate estate. A full estate administration, with multiple inventories and the necessary greater expenses, may not, therefore, be necessary. So, you spend more money on the front end of the process by setting up a revocable trust than you save at the end.
- A revocable trust does not provide any additional protection of your assets from creditors than a will does.
Decisions, decisions
What is the best approach? It really depends on the circumstances.
If your assets largely go to your heirs by financial and brokerage accounts, you have no real estate, and your beneficiaries are straightforward (to your surviving spouse and then to your surviving adult children, for example), a will without a trust, because of the added attorney expense on the front end to execute a revocable trust, may work best. But a revocable trust makes sense if you own real estate. It will help you avoid the costs associated with a full estate administration, not to mention the considerable time savings of your children, likely, winding up the overall process sooner and keeping the value of your total assets out of the public record.
Ask your attorney which options work best for you and proceed accordingly. And remember: The biggest barrier to the orderly administration of an estate is not getting started on the planning process at all.
Posted in: On the Way to the Courthouse