Your First Decision
When you create an estate plan, you have an original decision to make. That decision is whether to use a will or a revocable trust. A third possibility is to do nothing and let the laws of the state dictate how and to whom your property will go. You may want to seek an estate planning lawyer to help you make this original decision. I am one of the estate planning attorneys in Chico, California.
Most of my clients choose to use a trust as their basic estate planning tool. They do this to avoid probate, which is a court procedure that estates with wills, or with neither a will nor a trust, must go through. Often, people who know I am an estate planning attorney, tell me about a bad experience they have had with the probate of a parent’s estate. They want to avoid those problems of probate for their children by creating a trust. I often refer to a trust as a gift to one’s children.
A trust generally is more expensive to set up than is a will. It is a longer document because the rules for the trust are laid out in it and there must be transfers of a person’s asset to the trust. This extra cost is generally a few hundred dollars. If the client has no interest in spending more money now to make the transfer easier later, then a will is the right choice.
Why Avoid Probate
People prefer to avoid probate for several reasons. First is the cost of probate. There is a filing fee, and with probate, you must pay to publish notice in a local newspaper of the first probate court hearing. There will be an attorney for the probate and an executor or an administrator. The executor or administrator is the person appointed by the court to take care of getting together estate property, paying estate bills, dealing with any other estate issues and distributing the assets. That person is called an executor when he or she has been named in the will to do the job, and administrator if he or she has not been so named. The fee for the executor and the attorney is the same amount in most cases. See the heading Probate for further details about how a probate works and the fees. The fees for the probate are generally much more than the fees involved in getting trust assets distributed. See the heading Trust Administration for details.
With a trust, there is a necessary second document, which is a “pourover” will. It has that name because, at the time of your death, if there are assets that were not transferred into your estate, the will provides that those assets will “pourover” into the trust. If the total value of those assets is not over $150,000, then the transfer can be made to the trust with minimum effort. If the value of those asset exceeds $150,000, there must be a probate to transfer the assets to the trust. This is, obviously not a good result, because the purpose of the trust, in the first place, was to avoid probate. There is also another kind of will that some people use. That is a holographic will. It is a will handwritten by the testator (the person making the will) and signed by him or her. There are also printed wills, in which the testator fills in the blanks. These can be effective documents or can lead to big problems in an estate plan if they are not completed correctly.
Finally, people try to avoid probate because the probate file is a public document, and the public can determine what was in the probate estate, what it was worth, and who it was left to.
Kinds of Trust
I draft a revocable, living trust to avoid probate. You can change or revoke the trust whenever you want to. The living trust part takes effect while you are alive, in fact, as soon as you sign it. There are many other kinds of trusts, which you don’t have to know much about. I will mention a few that could have some relevance. The opposite of a revocable trust is an irrevocable trust. You cannot amend or revoke that kind of trust. It is usually used to get income or asset out of a person’s estate; for example a person could put assets into the trust for their children or grandchildren. The opposite of a living trust is a testamentary trust. That is a trust that is set up in a will or another trust to take effect on the death of the person who makes it. There is also a bypass trust, which is not used as much anymore. Its purpose was to double the amount that a couple could leave to their beneficiaries without having a federal estate tax payable. The reason it isn’t used often now is that a couple can currently pass an estate valued in excess of $23,000,000 to the beneficiaries without estate tax.
Your estate planning attorney can tell you more about any of these kinds of trust if they may apply to your circumstances.
You and your estate planning attorney will consider the value and type of assets you have, the people in your family and your relationship with them, and your own ideas will help you in deciding which approach to estate planning will work best in your particular and unique situation.