As I mentioned in my previous post, Americans are abysmal at Estate Planning. Over 50 percent don’t even have living will to convey their wishes after they pass. If you dig deeper into the statistics, you will find that even fewer Americans have a trust that protects them from the dreaded process of probate.
The Nightmare of Probate
Probate is a nightmarish process that is very bureaucratic and oftentimes results in family disputes and after court and attorney fees, it results in less of an estate to distribute to heirs. Contrary to popular belief, a living will does not protect a decedent’s estate from probate, it in fact ensures that the process will begin. When a decedent passes, the probate process begins which starts with validating the will. The process then continues with the courts identifying, appraising and distributing a decedent’s property. In this case, accounts with designated beneficiaries like Joint ownership accounts, 401K’s, IRAs and Insurance are the only things that are excluded from the probate process. Probate is often a long drawn out process that entails a great deal of attorney work and results in a smaller estate to distribute by the end of the process. In the interim, assets like real estate can be held up for long periods of time before it gets distributed to heirs. Regrettably, this is the best case scenario as this decedent had a living will, if the decedent does not, the courts decide on who and what during the distribution phase-this includes the custodianship of minor children! There is very little good that can come of this.
How then do you avoid probate?
The answer is simple create a revocable living trust along with your living will. Like the exempted Joint ownership accounts (accounts and property held jointly with your spouse), 401k, IRAs and Insurance accounts that avoid probate, a revocable living trust allows you to leave any and all of your property to your heirs while avoiding the probate process entirely. Doing this will save a lot of headaches and money for your family when you pass and your estate gets distributed. According to Nolo.com, a popular legal do it yourself website, “Revocable living trusts function like wills–you use them to leave your property, and if you change your mind at any time while you’re alive, you can change the terms of the trust or revoke it altogether. The advantage comes at your death. Property in the trust is controlled by the person you named to take over as successor trustee, and that person has the power to distribute the property to inheritors without any probate court involvement. That saves everyone a lot of work and gets property to the people you chose to inherit it much more quickly.”
How does the Living Trust Work?
The concept of a living trust is very simple but it is often misunderstood by most people. A living trust is a legal arrangement that allows a person called a trustee to hold the property of another person called a beneficiary. The rub is that in a “Revocable Living Trust”, you can be the trustee and control all the property in that trust. Since the trust is revocable while you are living, you can change who, what and when anytime you want while you are alive. Trusts aren’t just for rich people; they are for everyone who cares about their family’s well-being.
If I have a living trust, then why do I need a will too?
In combination, these two agreements are most powerful when used together. If a decedent purchases a piece of large real estate and dies before it is added to the trust, you can specify in the will a clause that specifies who will get any property not identified in the trust.
So, can you Trust a Will?
As I said before, you need to have a trust and a will and make sure they are in concert. These two documents make up the core of your estate plan. I always recommend seeking the advice of an attorney as there are exceptions and details that I may have overlooked at every corner of this process. I know several very good attorneys and would be happy to make a personal introduction if you want to start the estate planning process.