The Great Estate Planning Myth:
A will is the only estate planning document you need!
There is a myth that a will is the only estate planning document you need in order to have your wishes met in the case you become incapacitated or pass away. As an estate planning attorney, I hear this myth constantly, not just from my new clients but in everyday passing. The truth is a will alone has many limitations that most folks are unaware of. Having a complete estate plan, which includes a trust, can prevent numerous problems with your estate after your passing.
My top four reasons to create or update your estate plan to include a trust:
#1: Transfer Real Estate Directly to Heirs
The number one reason to establish a trust is to allow your loved ones to inherit your real property in the easiest way possible, which means avoiding probate (court). Many don’t realize that having ONLY a will means your property will be subject to probate upon your passing. However, in a trust, property will be controlled by the successor trustee, who is chosen by you. Your trustee will then directly transfer the property to your loved ones, bypassing probate. This process will avoid a long, drawn-out court process.
*Remember, any estate valued over the state minimum is subject to probate, so most people (especially those who own a home) will need a trust if they wish to avoid court involvement altogether.
#2: Your Estate Will Be Subject to Probate (Court)
Even if you have a will, your heirs will still need to start a case with the local probate court to carry out your final wishes. Here is a simplified break-down:
1. A judge will need to see your will and ensure that its valid, and then the judge will officially allow your named Executor to execute your wishes.
2. From there, your real estate will be inventoried and appraised.
3. Next, outstanding debts will have to be paid by your estate before the probate court allows your Executor to distribute your property.
This process can take between 9 to 18 months, or even longer!
*Alternatively, if you pass away without having a will or trust (known as intestate), the courts will take even more time to determine who inherits your assets. There are state laws that dictate who is the “next of kin”. These may not be the individuals that you want to inherit your hard-earned assets. Finding these heirs and determining how much they stand to inherit according to such laws adds additional time and expense to an already arduous court process.
#3: Probate Can Drain Your Estate Financially
Without a trust, an estate will go into probate which means various professionals (lawyers, CPAs, appraisers, your executor, etc.) will need to be consulted and hired by your heirs. Each step will cost time and money out-of-pocket, until your assets are released.
If your family is not able to afford these costs an attorney might offer to take a percentage of your estate. For example: 10% of a $500,000 estate is $50,000 in legal fees!
#4: Your Cash Could Get Tied Up, Leaving Limited Funds to Pay Your Bills
If your financial accounts do not have properly named beneficiaries and an estate goes into probate, your bank accounts will be frozen, and your family will have no access to your funds. Your loved ones will be responsible for all the final debts that you have, including costs to settle your final affairs, bills, taxes, medical bills, mortgage payments, and funeral costs. Funds held in probate will not be released to cover any of these expenses until the probate judge allows, which as mentioned above could take a long time.
Bonus: Trusts are private whereas a will that ends up in probate is public record. If you value your privacy this is another beneficial aspect of creating a trust.
Unfortunately, countless people believe that a will is the only estate planning document necessary. The good news is that having a will is a great first step towards completing your estate plan. Just to be clear: a complete estate plan should include a last will and testament, power of attorney and health-care proxy.
By creating a trust, you can avoid risky financial situations and ensure that your assets pass directly to your loved ones when you are gone.
My closing advice is to hire a professional attorney to create your estate plan. Although there are plenty of online sites that offer do-it-yourself wills, there is a good chance mistakes can be made and things forgotten. Think about it this way… the cost of hiring a lawyer now to create a trust, is only a tiny fraction of the court costs to administer your estate when you are gone.