If estate planning was a car, a will is the engine that makes it run. But an engine won’t necessarily get you where you want to go all by itself. As with a car, an estate plan can have many components, all of which work in concert to help you reach your destination. That is why many people who have prepared a will also establish a trust as part of their comprehensive estate plan.
Since a trust can address many of the same issues that a will does, most notably property distribution, it may at first glance seem unnecessary or redundant to have a trust if you already have a will. However, the reality is that a trust is a crucial adjunct to a will that offers several benefits for both the individual who establishes the trust as well as the loved ones who will receive assets and manage the estate after they’re gone.
Trusts work either independently or in tandem with a will. While a will only takes effect after you die, a trust takes effect upon execution. With a trust, you identify specific assets (real property, cars, stocks, money, etc.) that you transfer to the trust. You also appoint a trustee (which can be a bank, attorney, trusted relative, etc.) to administer the trust for your benefit.
Not much changes in terms of your use and enjoyment of anything transferred to the trust while you’re alive. But by transferring ownership now, or upon your death by beneficiary designation to your trust, the assets in the trust won’t have to go through probate (the court process of officially recognizing transfers of ownership after death). That is because, unlike us, trusts do not die. Only those assets that are in your name at the time of your death are subject to the time-consuming, expensive, and often-frustrating probate process. If all of your assets are in your trust, your trustee can manage and distribute those assets per your wishes without probate court involvement.
Why Does Avoiding Probate Matter?
There are several reasons that people want to avoid probate as much as possible when putting together their estate plans:
- Cost. There are significant fees, costs, and expenses involved in the probate process. A personal representative will be appointed to administer your estate and that representative will likely need to have an attorney. That attorney will need to be paid. If there is a dispute over how the assets are to be distributed (as between siblings or others), the attorneys’ fees involved in probate can be huge. Attorneys’ fees will dissipate the value of the estate and may also come out of the pockets of those contesting the will. Additionally, there are court filing and administration fees as well as other expenses that can add up to thousands of dollars, all of which get paid out of the assets of your estate.
- Time. The wheels of justice can spin mighty slowly, including in probate court. Even without complications or disputes, it can take months for the probate process to get to the point where your heirs receive any assets. This can be enormously frustrating for those involved.
- Lack of Privacy. Like almost all court proceedings, probate cases are public record. Every pleading, document, spreadsheet, accounting, distribution, and inheritance amount or receipt filed with the court as part of probate will be publicly available to anyone. This may or may not be an issue of great importance to you, but if you do value your privacy, probate is not where you want your estate sorted out.
- Outright Distributions. At the time of distribution in probate court, the amount distributed is outright to the beneficiary(ies) which does not carry with it creditor protections or other safeguards for their inheritance. Protecting your beneficiaries from their own potential self-destructive behavior like spend-thrift issues, drug or alcohol abuse, creditors or other possible litigation is a benefit in a Trust, but will not be included in any outright distribution to beneficiaries.
- Disqualification of Beneficiary for Means-Tested Benefits. If any of your beneficiaries are on a means-tested government benefit, whether it be for social security disability or other special needs, a distribution from probate in excess of $2,000 can disqualify them, or reduce the benefits they currently receive from the government. This type of concern is remediable in a Trust.
In addition to probate avoidance, specialized trusts can help manage and distribute assets, such as special needs trusts that provide for the care, resources, and well-being of children with special needs.
Contact Kreis Enderle to Learn Whether a Trust Fits Into Your Estate Plan
Estate planning should be tailored to your specific needs; your neighbor’s needs may not match yours. While trusts offer several advantages, whether and where a trust fits into your estate plan is a subject for discussion between you and an experienced estate planning attorney.