Whether you're rich or poor, married or single, have kids or don't have kids, an estate plan is important. There are various documents that we frequently use to create a well-crafted, effective and clear estate plan. A Will and a Trust are each valuable tools in creating the right plan. While separate articles and posts could be written (and I have written!) about the particulars of Wills and the Trusts and the appropriate use of each, a simple description might be the following: A Will directs where your property goes and who is in charge when you die but would necessitate probate, while utilizing a Trust avoids probate, streamlines asset distribution and allows for more detailed ways to distribute assets after your death. Both are important tools but a trust is generally preferable and more effective as the central instrument in someone's estate plan. Trusts cost a bit more than Wills on the "front end" (creation of the plan) but are generally considered a superior tool and often end up saving quite a bit of money in the long run. Our estate plans are of course customized to each client's situation and we utilize Wills, Trusts and other documents to put in place a plan that's right for each individual's needs.
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By forming a revocable living trust, one can readily avoid probate. When a trust is formed, the creator of the trust would normally transfer most (or all) of their assets to the trustee of the trust (which is in most cases that same owner/individual) for the benefit of that same owner/individual during their lifetime. Accordingly, during the creator’s lifetime, the trust would not usually have any impact on control or use of the assets.
However, one key benefit of a trust is what occurs upon the death of the individual establishing the trust. Upon death, the trustee’s rights and responsibilities are transferred to a new pre-determined individual (usually appointed by the initial owner) and the assets of the trust are distributed (or retained for the benefit of successor beneficiaries) in whatever fashion has been laid out in the trust document by the owner. This often involves distribution to family members or other beneficiaries but it could be whatever the trust creator has established in the trust agreement. In short, because the owner’s property was held by the trust, probate would be entirely avoided. The trustee takes control of trust property and manages and distributes the assets pursuant to the written trust agreement and no court involvement would normally be needed. Estate planning for “blended” families is particularly important and can present unique considerations. Often, spouses who marry each other later in life or after having their own children, bring with them unique assets and expectations. Goals and plans for what happens with their money and their property and how children are cared for and/or treated can vary widely between spouses. In order to implement a plan (or plans) that match the desires and expectations of each spouse, particular care and expertise are required. In some instances, separate trusts can be utilized to keep certain assets segregated and to be sure that the right property gets to the right heirs/beneficiaries. Furthermore, documents like power of attorney must be carefully considered and prepared in order to ensure the types of protections (and outcomes) that are important to each spouse.
In order to accomplish its goals and purposes, a trust must be “funded”—meaning the trust must own the assets of the creator of the trust. It needs to have assets in it. Often, one of the largest assets is real estate. This could simply be a personal residence but might also include other real estate such as rental property, a second home or even vacant land. Real estate is transferred to the trust by executing a deed that is then recorded with the county (or St. Louis City) recorder of deeds. There are times when this is most effectively accomplished by an immediate transfer by deed at the same time that the trust is signed. Other times, a “beneficiary deed” is used to facilitate an automatic transfer upon death. There are also occasions in which unique circumstances surrounding the property (such as shared ownership with another person) may require some varied approach. Regardless of circumstances, we work with our clients to handle real estate transfers seamlessly as part of their estate planning.
A trust generally functions as a replacement for a Will. Most clients are drawn to a trust due to its ability to avoid probate (unlike a Will) and the opportunity to provide ongoing support or distributions to named beneficiaries. In many ways, a trust is a superior estate planning tool to a Will.
So...if you have a trust, do you also need a Will? The short answer is "Yes." The creation of a living trust should be followed by the titling of assets in the trust. In other words, the trust needs to become the owner of the client’s assets/property. The methods and particulars of this vary from asset to asset (and in some cases involves simply naming the trust as a payable on death beneficiary) but as a general concept, the trust needs to become the owner of the assets that belong to the client. When this is done effectively, a Will is no longer needed and probate is avoided. One could, in theory, simply not prepare a Will at all in this scenario. However, there are sometimes hiccups. I have worked with clients and families that completely forgot about a certain account or investment. Or occasionally, the client made a mistake and failed to property re-title an asset. So, what happens when an asset or two fails to make it to the trust before death? The related Will transfers it there (to the trust) upon death. This would require a probate process (only for those forgotten assets) but the Will would move those assets to the trust—where they perhaps should have been from the beginning. However, it is important to note that there are some nuances to this—as some accounts name beneficiaries—in which case a Will would be unable to “fix” a missed account. Having a Will does not to replace the necessity of re-titling assets to the trust, but it often does go a long way to help when there are oversights. Property that you own when you die is typically controlled by the terms of your Will, if you have one. There are numerous exceptions to this principle (such as the use of trusts, beneficiary designations and other planning) that can effectively help someone avoid probate.
A Will, when prepared and signed properly, will direct where your assets go—whether to family members, friends, a charity or somewhere else. However, many people mistakenly believe that having a Will effectively keeps their property and assets out of probate—believing that probate is only for people that had no Will. This is simply untrue. While a Will is effective at authoritatively directing the distribution of assets, such distribution is accomplished directly by the probate process and is subject to the cost and time required. Even with a Will, property would typically go through probate (or a similar court process) unless some additional planning has taken place prior to death. Fortunately, there are many estate planning options and tools to effectively avoid probate while accomplishing additional goals, as well. A Will can be an important component of planning—but a Will alone will not keep your assets out of probate. Why Do You Want to Avoid Probate?
Probate is both costly and time-consuming and often presents a difficult procedural headache for surviving family members after the death of a loved one. In some limited instances, probate may be preferable—but these are very much the exception. On the whole, it is typically advisable to take the necessary steps to avoid probate altogether. The following represent major reasons why you would want to probate: Length: typically 7-12 months (or longer) from death to discharge of the estate. In most cases, probate simply cannot be administered in less than about 7 months. Cost: between legal fees, courts costs, notice and publication fees, probate sometimes costs between 4% and 10% of the gross estate Hassle: length/cost (as mentioned above) but the inherent court procedure, potential hearings and court filings require ongoing attention for several months Privacy: probate is public record, with much information being available to the public A trust can be a wonderful tool to help set in place an estate plan that accomplishes your goals. Situations, goals and life circumstances vary, so there really is no across-the-board answer as to whether a trust “makes sense” for a particular demographic of clients. Ultimately, putting in place a trust usually makes the best sense when a client wants to (i) avoid probate upon their death, and/or (ii) use assets, property and money for a specific purpose after their death. First, while there are some other ways to avoid probate, a trust generally does so in the simplest and most comprehensive fashion. Second, a trust is generally the only effective tool at carrying out plans or wishes that assets be used for a certain defined purpose after death. This can be particularly important when money will be needed to raise children or to fund education. However, the ability to control how assets are used is also tremendously important in circumstances where the (now deceased) creator of the trust wants to ensure that assets are not wasted away, wants to provide periodic payments for support, wants to delay all or some of the distributions and/or wants to provide for someone whose judgment or capacities may not be up to managing a large some of money. In working with clients, I view a trust as a potential tool to accomplish the goals and plans of my client. Sometimes, we do not recommend a trust because it is just not needed to accomplish those goals. However, in many instances, this tool becomes very important and is a critical part of setting in place a comprehensive, complete and meaningful estate plan.
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