LIVING TRUST VS. WILL OVERVIEW
Why Create a Trust?
According to real estate columnist, Robert Bruss, “the only way to avoid probate is to title your home in a living trust.”
If you want your heirs to receive your assets quickly and free of the high costs of probate, then you create a living trust. A typical living trust package includes:
- The Articles of the Trust (which avoid the probate)
- A "Pour Over Will" (The "Will" with your trust that catches any residual assets, (i.e. furniture, car, etc.) and “pours” them into the trust)
- A Living Will
- Two Powers of Attorney - the Health Care Surrogate Power of Attorney for health care decisions; and the Durable Power of Attorney for financial decisions.
Revocable Living Trust
Revocable living trusts are trusts that allow you to control your assets during your lifetime but pass them directly to your beneficiaries upon your death. You “fund” your living trust during your lifetime by transferring your assets into it. Although your living trust becomes an active document upon signing, you must transfer your assets into the name of the trust for them to avoid probate; this is call “funding” your living trust. For instance, for your home, you will prepare a quit claim deed changing your title to your trust name, (Freedom Rings can prepare your quit claim deed for just $69.00). After recording your new deed with the clerk’s office in the county where your property lies, then you have successfully transferred your property into your trust. In addition, you may need to contact your bank, and any other institutions where you hold assets, and direct them to rename your assets and accounts as belonging to your trust. Such institutions may have you fill out a simple form in order to fund your account into your trust.
In your trust document you will designate a “Successor Trustee” who will administer your trust after your death per your stated wishes. You will also name an “Alternate Successor Trustee” in case the primary successor trustee is unable or unwilling to act. You will also name your beneficiaries, as well as alternate beneficiaries.
Living Trust Advantages
Living trusts have five main advantages:
- They avoid probate
- They allow for privacy (wills are recorded, trusts are not, thus trusts never become public record)
- They allow for flexible management
- They save families money (on probate, legal, and court costs)
- They allow for easier and quicker transfer of assets upon one’s death.
What is a Will?
A will is a statement that indicates your desires regarding the distribution of your assets following your death. A will not only gives you control over your decision making as to who gets what, but it also gives you control over how they receive it. It conserves and distributes your assets and money according to your wishes; it names guardians for your minor children; and it generally minimizes the chances for confusion as to what your final wishes are.
What is Probate?
Probate is a time-consuming process that requires:
- Notifying the Court of the deceased person’s death.
- An inventory of the deceased person’s property and appraising its value
- Paying the deceased person’s debts and taxes
- Providing the Court with the validity of the deceased person’s Last Will and Testament
- Waiting to distribute the remainder of the deceased person’s property
This process does not change when a person dies without a Last Will and Testament, or “intestate.” For when one dies with no Will, the same probate process must occur according to your State’s “intestate succession” rules. Thus, when there is no Will stating your final wishes, then the court must decide who gets your stuff by applying the rules of intestate succession, or distributing your assets to your family according to state law.
Probate is Expensive
Probate is a long expensive process that simply does not have to occur. The death of a family member is a difficult time and the family should not have to be forced to endure the unnecessary agony of probate.
Probate will require a “personal representative” and an “attorney.” The personal representative is also sometimes referred to as the “executor.” In probate, both the personal representative and the attorney are entitled to substantial fees for their services.
The personal representative is responsible for making sure the wishes of the decedent’s Last Will and Testament are carried out. The personal representative often hires an attorney to handle the necessary paperwork.
Personal representatives and attorneys are allowed to charge “reasonable fees” for their services. Typically, where an estate has a gross value of $400,000., attorney fees will run in the area of $12,000. but could go much higher. These fees are paid out of the deceased person’s estate before any proceeds are distributed to the decedent’s family.
Also, additional fees, besides the attorney’s, incur with the probate including court costs, filing fees, appraisers’ fees, ect.
Most people seem to agree that probate is something to be avoided and a Living Trust can accomplish that goal.
Source: We The People's Guide to Estate
Planning, Ira & Linda Distenfield, 2005, John Wiley &
Sons, Inc.