James REICHARDT

Practicing law since 1977

Estate Planning: Will or Trust?

I get lots of calls from people who have just come back from a seminar and now they have a strong craving for a trust. Nine times out of 10, they get over it.

Why a trust? There are a lot of people out there trying to sell estate planning services and financial investments to mature adults. As a selling tool, they often use fear. Fear of expense and fear of delay. They dig out grandma’s old stories about probate difficulties she had in the 1960s to scare people about the probate process. They resurrect old anecdotes about delay and expense that no longer apply; but their tactic works, at least initially, and they convince people that they definitely need to avoid expense and delay of probate by getting a trust.

When is a trust appropriate? Regardless of how much is in your estate, if you have a dysfunctional family where certain of your next of kin are likely to cause difficulty in court proceedings, or if you want to disinherit a child or spouse who would likely be angry enough to challenge it in court, a trust may be a good idea. If you own real estate in more than one state, a trust can save the expense of having to open what is called ancillary probate in the non-home states in order to transfer the real estate. These are the most common reasons I have seen to steer people towards trust creation.

Keep it simple. My general philosophy in estate planning for normal kind of folks is to keep things as simple as possible. Unless your life has already been complicated by one of the situations in previous paragraphs, it is probably best for you to continue to hold property in joint tenancy with your spouse and then have a will providing for disposition of your assets when you are both gone.

Establishing a trust. Establishment of a trust involves transferring all of your assets into this new entity called a trust. You are no longer “John Smith.” Now you are “John Smith, Trustee of the John Smith Trust.” You will deed your house to yourself as Trustee. Your stock holdings or brokerage accounts and possibly the beneficiary of your life insurance will have to be changed in order to take full advantage of the trust you are establishing. For good reasons, this might be a worthwhile endeavor. At some point, when we leave this earth, assets do need to be transferred. When you set up a trust, you make the initial transfers now. When you have a will, those transfers are done by your executor after you pass away. Either way, the job and expense of making those transfers has to be done. With probate, you pay after you’re dead. With a trust, you pay now.

The poor man’s trust. One benefit of a living trust is to provide for someone to manage your financial affairs in the event you become disabled. This is the expensive part of probate that can be easily avoided.

If a person is unable to handle his or her financial or personal affairs, a loved one can bring a petition to have the person declared disabled and have a guardian appointed. This process involves safeguards to protect the rights of the alleged disabled person. Typically, an attorney known as a Guardian Ad Litem is appointed to inform the person of their rights and to make a report to the court. A doctor’s report must be filed and if the court sees fit to name a Guardian of the Estate or Person, those guardians will have to report to the court annually on the financial transactions and condition of the person.

The probate costs for this process run into the thousands of dollars. They can be avoided through the use of Powers of Attorney for Property and Health Care. For a minimal expense, the Powers of Attorney can be executed and, if properly used, give the person all the protections available through the court, at a tiny fraction of the expense. However, you first must be lucky enough to have someone in your life who you trust with your money and your life.

© 2018, James Reichardt, Attorney at Law. All rights reserved.