Q. During my learning years, my parents, associates and teachers always told me how important it is to have a will to avoid probate court. Now that I’m nearing 80, I’m hearing that, in addition to a will, I need a trust to stay out of probate. Is this correct, and who requires it? Also, a simple explanation of “trust” would be appreciated.
M.D., of Smithton
A: Before I start, please remember that I am not a lawyer, so I will speak only in general terms that I hope might be useful and understandable without raising the hackles of any area attorneys. That said, you can “trust” me a little because I have established a trust of my own for the very reason you mention. However, whether YOU need to go to the trouble of starting one depends on your personal financial situation.
First, if you are relying solely on a will to distribute your property after death, your family probably will find itself in probate court. A will is merely a document in which you have left instructions on how you want a designated executor to handle your estate. When you die, your will is opened and legal proceedings start to inventory your property, pay debts and taxes, and oversee that your wishes are fulfilled.
So wills do wind up in probate court to make sure everything is handled above board. However, this, as you know, can involve legal expenses. Some say perhaps 5 percent of your estate can be eaten by lawyer and court fees through probate. Because legal fees reduce the value of your estate, people naturally want to do everything they can to avoid probate.
But do you need a trust? Maybe not, and let me give you a personal example. When my dad died in 1991, my family avoided probate costs even though he left a will but no trust. How? He had been smart enough to make sure all of his assets listed beneficiaries who could assume control (right-of survivorship, for example) immediately upon his death. These included the deed to his house, his bank passbooks, his CDs and his stock certificates. Then, because I was the only immediate survivor, it was up to me to carry out the rest of the wishes he had left in his will. But none of the money and stock had to go through the court first.
So, if you have both a simple family and financial situation, a trust may be needless work and expense. If you have, say, only two kids you trust and relatively basic assets like my dad did, you might consider dividing it all equally and then putting their names on deeds, bank accounts, etc., so your children immediately can take them over upon your passing. Then, they could use these assets to fulfill any other wishes in your will — paying certain amounts to grandkids or donations to charity, for example, all without having it go through probate.
But if you have maybe a large family and a complicated web of financial holdings, you might want to consider a trust. It involves more work and can be somewhat expensive (depending on your definition), but a trust accomplishes the same goal: avoiding probate. Since I have no kids and a somewhat tangled mess of assets, I established one 15 years ago.
In a way, it may sound a little silly. Through my trust, I (as the grantor) have given myself (as the trustee) official legal title to property that is now promised to others (the beneficiaries) upon my death. As the trustee, I keep full control over all of my property in the trust as long as I am alive. And, because it is “revocable,” I can change the terms or even tear it up whenever I wish. Again, the important advantage is that all of my bequeathing within the trust will be done by the successor executive I have named without having to go through probate.
The disadvantages are that it can be expensive and cumbersome. There are Intenet legal sites that offer inexpensive forms so you can do it yourself, and if you feel comfortable doing it this way, you might consider it. With no legal background, I did not and consulted a lawyer, although estimates are that it might run $1,000 or more these days.
The other drawback is that you must go through the hassle of changing the ownership of all of your assets, which, I often read, people sometimes forget to do. For example, I no longer am listed on the deed to my house as Roger Schlueter but as Roger Schlueter, Trustee (of my trust), which is how St. Clair County now addresses my real estate tax bills. The same goes for my CDs, IRAs, brokerage accounts, etc. Because unless the designation is changed, it doesn’t become part of the trust, which would make the trust worthless.
Also, you still need a will even if you have a trust. As nolo.com notes, your will is sort of emergency backup protection for property that you don’t transfer to yourself as trustee. For example, if you buy 1,000 shares of Apple and die minutes later before transferring ownership to your trust, your trust’s successive executor will have no control over it. However, in your will, you can designate someone to receive all property not included in the trust.
A couple of other things to remember: A will and all associated documents become a matter of public record when they are submitted to a probate court; the terms of a living trust need not be made public. Trusts cannot stop creditors from coming after your beneficiaries, although it may make it more difficult because trusts are not public record. Trusts also have no effect on estate taxes, although unless you have more than $5.5 million, you don’t have to worry about federal estate taxes anyway.
I hope all of this legal mumbo-jumbo has been of some help. Without knowing your situation, I cannot offer more specific help. Perhaps, like my dad, you could simply add beneficiaries to your individual assets. For those with uncomplicated estates, that method seems quick, simple and cheap. Otherwise, you might want to at least inquire whether a trust would better suit your needs if you fear probate will siphon off a sizable chunk of your wealth. Either way, you may be able to avoid your day in court.
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Answer to Sunday’s trivia: If you love the exotic musical sounds of an oboe, you may be interested to learn that the word ultimately comes from the French “hautbois,” meaning “high wood (or woodwind).” Italians heard the word as oboè, and it apparently entered the English language as oboe about 1770 or so.