|
Neither document
resolves all your affairs
Be realistic; when a person dies, certain
matters have to be taken care of by somebody -
lawyer or not - whether there's a Will, Trust
or neither one. First, there is the funeral.
Then, bills have to be paid; personal business
and insurance matters must be concluded. Final
personal income tax and inheritance tax
returns must be filed, as well as a federal
estate tax return, if necessary. The dwelling
might have to be vacated. All sorts of
property must be accounted for, secured,
divided appropriately and formally transferred
as required. None of these chores can be
avoided. A certain amount of time -free or
paid - is inevitably involved. Obviously,
leaving all these details to an attorney can
be expensive, but it is usually not necessary
if the Executor and heirs can help.
Whatever your choice, here
are some things to consider in comparing the
Will and the simple living Trust:
Cost comparison
The benefits, to most people, of the simple
living Trust have been greatly exaggerated, as
have the problems experienced in probate.
Remember, the simple living Trust will not
save taxes - fees, maybe, but not taxes. When
people talk about using a Trust to avoid
probate and its "costs," they are
referring primarily to attorneys’ fees,
which have traditionally been based on a
percentage of the probate estate's value. This
very often results in unreasonably large fees
for handling even simple estates. Such fees
may be permitted, but they are never required
by law.
Keep in mind, too, that if
you use a lawyer to prepare a living Trust -
which you certainly should - the up-front cost
is greater than for preparing a simple Will.
Also, most property should be transferred, so
you will probably need at least one deed
prepared, and financial accounts also must be
changed to name the Trustee as legal owner. If
you need the attorney's time on these matters,
it will probably cost extra. Finally, you
should have a pour-over Will done with the
living Trust anyway, so that any omitted or
subsequently acquired assets are "poured
over" into the Trust at death. This Will
should be included in the cost of drafting any
living Trust.
TIP: If saving a probate
attorney's percent-based fee is the only
reason you want a living Trust, you (or your
Executor) can find somebody willing to handle
probate on an hourly fee basis. Don't gripe
about lawyers; just shop around. Understand
that Wills, Trusts and estate work comprise
one of the very most complex and difficult
areas in the law, so these attorneys might
charge more than others. But even with a high
hourly rate, the final, total fee will often
be much less than a fixed percentage - IF the
estate really is a simple one to settle.
Disposition and ongoing
management of property
The possibility of leaving assets outright to
minor children may be the greatest
disadvantage of the simple Will. Many simple
Wills call for everything to go to the
surviving spouse - which might be fine, IF
there is a survivor. The potential problem is
that most of these documents name the children
as secondary beneficiaries, upon the death of
the second parent, or in the event of a
simultaneous death. If the parents die while
the children are minors, a guardian must be
appointed over the children's inherited assets
(and over the kids themselves), and this is a
cumbersome form of property ownership. E.g.,
the law might require division of an asset,
such as real estate, among the children,
rather than holding it intact. Remember, too,
that guardianship usually ends at age 18 and
assets must then be distributed outright.
A Trust, on the other hand,
might provide for distributions only at a
later age, once more maturity and financial
responsibility have been developed. Until
then, almost unlimited flexibility can be
achieved in the management of estate assets
with a Trust. This flexibility is desirable in
dealing appropriately with the unique
abilities and opportunities (or disabilities
or illness) of each child, without requiring
rigid equality of spending over the years.
This is the approach most parents take while
alive. (This ongoing, discretionary power to
“sprinkle” or “spray” money as needed
can be useful, too, in providing income for a
surviving spouse, while protecting the
principal of the estate for your children from
a previous marriage.)
BEWARE! But watch out if
your Trustee might also a beneficiary!
E.g., Oldest daughter
becomes Successor Trustee, after Dad becomes
disabled. If the Trust gives the Trustee broad
discretion to “sprinkle” income, ALL that
income might be taxable to her, personally -
even if she never actually “sprinkles”
herself a dollar!
TIP: The Trustee should be
specifically empowered to “assist” a
child’s guardian, e.g., by adding a bedroom
to the guardian’s house, or buying a bigger
car. These are things that, obviously, benefit
the guardian, in addition to the child.
Therefore, without this authority, the Trustee
might be uncertain about whether such
reasonable expenditures were, in fact,
permitted by the Trust document.
With a Will, in contrast to
a Trust, the Executor’s management ends with
his final report to the court, soon after
completion of his legal duties. So, many
simple Wills provide that when both parents
are gone, everything is distributed outright,
equally among the children. Never mind about
their actual needs. With a Will, the way to be
"fair" is usually to just be
“equal,” because it is written in stone.
Unfortunately, though, nobody can tell what
the future might bring.
Probate court supervision
over sales, investments and accounting after
death can be reduced or eliminated if, at the
time of death, assets are already held in a
living Trust. This factor can save time and
expense, too. Note that a testamentary Trust
does not help you in this regard; probate
court is Square One, since this kind of Trust
is created in a Will. Only after probate of
the Will does a testamentary Trust come into
being, and it often must be registered under
state law. Testamentary Trust transactions may
be subject to court review.
The
purpose of this newsletter is to stimulate
thought for my clients and those professionals
with whom I network. If you are a real
estate, estate planning, taxation, financial
planning or insurance professional receiving
this newsletter, please call my office and
introduce yourself to me. I'm always
seeking to grow my referral network, and to
expose more service professionals to my client
base. I specialize in helping those
individuals looking to buy, sell or refinance
real property in the Pacific Northwest Area. |
