11/20/12– More on Wills, Trusts and Probate

You asked for it, you got it. A more in depth discussion on estate planning and the probate process.

Why would you want to “avoid probate?”

Do you need a trust? Why?

What are some other strategies for settling my estate?

What if I don’t have very many assets? Do I need a will at all?

Do I need a lawyer to write my Will?

All those questions and much more will be answered!

Free! Open to the Public


Will? or Trust?

I’m often asked by people of all social strata about the need for a Trust.  Why would someone need a trust rather than a will?

Like Jeff Foxworthy of “you might be a redneck if….” fame,  my short answer is:

You might need a trust if you have:

appropriate for trust?
  • a very large estate (right now > 5 million, subject to change by the end of 2012)
  •  complicated tax issue
  •  business succession issues as part of your estate
  •  a child or adult dependent with special needs
  • a need to protect a “spendthrift” from themselves
  • a need to plan for long term care

Inevitably, when I ask why my client thinks they need a Trust, I’m told that she wished to “Avoid Probate” (a phrase forever captured in the title of that perennially bestselling book: “How to Avoid Probate!” )

But very few people seem to understand why they might wish to avoid Probate at all.

The fact is, most states now offer a means of by-passing probate for small estates (in Virginia, currently < $15,000)   Often that can be accomplished without need for drawing up a Trust through the use of joint ownership of property and accounts, named beneficiaries, creation of life estates, pay on death accounts and the like.

When I discuss Trusts with a client, I try to explain that basically, from an estate planning perspective, Trusts and Wills are just two different approaches toward accomplishing the same thing. Both are intended to pass property to someone else. The former – a Trust – does it during your lifetime; the other – a Will – does it when you die.   Perhaps the most important thing to know (and one many people never do figure out until it’s too late) are the tax consequences of one method over the other.  Also, creating a trust during your lifetime tends to require both some sophistication in administering a trust and/or paying someone who can administer it for you.

I tell people to imagine that both a Trust and a Will can be thought of as “buckets.” That is, buckets which hold your stuff – property, accounts, stocks, assets, jewelry – whatever you decide to put in it.

With a trust, you transfer that stuff “into” the bucket during your lifetime and effectively, you no longer “own” or hold title to it, the Trust does. You can name yourself as Trustee and still control the assets in some cases. You can also be the “beneficiary” of the Trust which means that if you have assets – for example, rental properties – that produce income, you may be receiving that income as the named beneficiary. (as another example, you could have income from investments in stocks that may be paid to you while the stocks are an asset of the Trust).

On the other hand, with a Will, you only fill your “bucket” with your stuff when you kick it. The bucket that is.  You create a “probate estate” only after you die, and your executor (or personal representative) presents your Will for probate.  During your lifetime you maintain full ownership and control of everything. If you sell or otherwise use up those things before you die, the bucket just doesn’t get filled up.

There are many and varied ways to set up Trusts – from relatively simple to extremely complicated. I have very few clients for whom it pays to set up a Trust.

Wills too can be complicated, but generally it is a pretty straightforward document to draft. Sometimes the hardest part is determining who you trust enough to carry out your wishes as executor.  What I spend more time doing is making sure that I keep as many assets out of the “probate bucket” as I can so that the Will is not the vehicle used to pass the property at all. For example, between husbands and wives it is common to hold real property “by the entireties” with survivorship. That means that whoever remains alive, keeps the whole ball of wax.  You can set up property ownership between people who are NOT married as “joint tenants” with rights of survivorship which basically would work the same way. This is extremely important for people who for whatever reason, are not, or cannot get married but who wish to leave real property to another.  In this way, the property passes OUTSIDE the Will (or “probate bucket”) and it passes immediately. This is also true for automobiles and other “titled” property.

There are many goals when planning your estate. One of them is making sure your LIFETIME needs are met.  Most people don’t think of it that way. But when I talk to people about their current financial status, I want to make sure they are comfortable and well taken care of through their entire life. That often means planning for long term care. This is another whole post which I’ll write about another day.  But simply “avoiding probate” is not enough. In fact, that’s relatively easy.

Another goal is making sure that gifts you wish to make, get to your loved ones. And that both you and they pay the least amount over to the government along the way.

It’s true that both death and taxes are certain. How and how much is still an open question.