The benefits of revocable living trusts
Clients that call our office often ask about setting up a document that will provide guidance for how their assets, end-of-life decisions, and agent appointments should be handled. To achieve this, they often ask about how to set up a will. In consultations, though, they can be surprised to learn about the limits of a will serving as their estate plan. A trust may be the best tool to achieve your estate planning goals.
A will gone wrong
A case study that illustrates this occurred last year, upon the tragic death of celebrated television host Larry King. He left behind a multimillion-dollar estate and a barely legible handwritten will, just three sentences long, attempting to pass everything down to his kids.
This seemingly simple request led to a bitter dispute in probate court. What should happen to the estate portions allocated to children that predeceased Mr. King? Who should oversee the execution of his wishes? He died while in the process of divorcing his seventh wife; should she be an heir?
All of this ended in a months-long legal battle. Mr. King’s health, mental capacity, and risk of undue influence created major points of contention as part of the public probate process. When the dust settled, his son and his wife found themselves on opposite sides of the case.
Some of these issues could have been avoided through a well-crafted will, but even the most carefully created will can raise issues when used as your sole estate planning document.
Avoiding the probate process
Probate is the process by which a court “proves” the validity of a will and its contents. The process is usually lengthy, expensive, and entirely avoidable. When someone dies and leaves a will, a probate court reviews the will to determine if it is valid. This is a public process, so any interested party could challenge your will’s validity. This could be out of a belief that they were wrongly left out, that the will was coerced, or that it does not accurately reflect your wishes.
In Arizona, leaving an estate with over $75,000 worth of personal belongings through a will means that it will have to go through probate. The problem is that the process is both lengthy – on average, no less than six months – and costly, as attorneys often charge hourly fees to see the process along.
Another disadvantage of court probate is that it is public. A public and lengthy affair can invite unwanted claims to the inheritance, discord among family members, and can alert creditors.
In short, leaving your wealth to the workings of the probate process is terribly inefficient. And with lawyer and court fees often taking up a significant portion of the estate, your belongings can end up in the hands of someone you didn’t intend them to.
However, there are exceptions to this rule. Not all property has to go through probate, and one important exception is property that is titled in a trust. When a trust is properly executed, you can transfer as much property into it as you’d like. The trust creates an entity separate from you and your family, that must still be administered according to your wishes, but doesn’t require probate to enact.
A will must be proved after your death because you cannot be consulted on your wishes; in contrast, a properly executed living trust can be active for years before your death, so you can continue to manage assets while alive and ensure they pass efficiently after your death in accordance with your wishes.
Keeping your affairs private
Next, probate (and the wills it concerns) are a matter of public record. Anyone can request to see a copy of your will – which might contain sensitive family information, or a list of the assets you possessed. This is true even for individuals you did not include in your will.
This opens your estate up to the risk of baseless challenges to the will from interested parties seeking to collect a portion of your estate. Even claims that lose consume your loved ones’ time and money. Moreover, due to the public nature of this process, creditors may also be notified, and demand payment out of your assets before they can pass down to your beneficiaries.
In contrast, a trust is never made part of the public record. The sensitive information it contains about your family, wishes, assets, and preferences remains known to your loved ones only. You might need to prove some of its key content to third parties when transferring your belongings into the trust. However, we mitigate this by preparing a simple trust certification. This short document confirms some key details about your trust (its creators, and the people authorized to act on its behalf). In this way, you never need to disclose all the sensitive information that a public will would suggest.
Incapacity planning
A comprehensive estate plan details what should happen to your finances in case of disability. The government has a system to manage your affairs if you become incapacitated. That system is called guardianship (including medical decisions) or conservatorship (for financial matters). This system is often used to determine guardians for minor children, but it also applies to incapacitated adults.
Both processes involve an interested party petitioning the court, effectively requesting that the court place the disabled adult in a guardianship or conservatorship. This process, which commonly involves family members testifying, can be difficult for you, and cause severe hardship on loved ones. It is also costly, as most related fees come out of the estate.
A trust-based plan can avoid the need for this by incorporating language that defines disability. You can establish a panel of trusted individuals and medical professionals who vote to determine if the trust maker is, in fact, disabled. If disability is established, the assets in a funded trust would be managed by the successor trustee — eliminating the need for a conservatorship.
Additionally, our trust packages always include a durable Power of Attorney to supplement the trust. This gives your agent the ability to deal with unfunded property, and miscellaneous items like mail and tax returns. Given this, the need for a guardianship to secure the affairs of an incapacitated person is rendered moot.
A will-based plan can attempt to avoid an adult guardianship or conservatorship in the case of disability. However, a trust-based estate plan is more comprehensive. In a will-based estate plan, the aforementioned durable power of attorney is the entirety of the disability plan. Without this, the remedy courts may defer to is guardianship.
Conclusion
A will can be an important portion of an estate plan – but, in most cases, it shouldn’t comprise your entire estate plan. Establishing a trust can ensure your estate never has to go through the lengthy, expensive probate process. Yaser Ali Law serves the greater Phoenix, Arizona area, and can assist you in establishing a one-of-a-kind estate plan that addresses all these concerns. Schedule a consultation with him today by calling our office at (480) 442-4175. Our team of estate planning specialists is ready to assist you.