WHY DO I NEED AN ESTATE PLAN THAT INCLUDES A TRUST?
Financial Benefits
Avoids probate for anyone who owns property (see A Plan Today Keeps Probate Away for more information)
You decide who benefits from the estate and who received gifts, money, and property
You decide when and under what circumstances those benefits are received
You can choose trusted person to manage affairs if you are incapacitated (vs. an expensive, court-appointed conservator)
Family Benefits
You choose a Guardian for your children (rather than the court) and can set guidelines for when and how they receive their inheritance (instead of them receiving the entire estate at 18 years old with no oversight)
You can choose trusted person to make health care decisions for you if hospitalized/incapacitated; prevents hospital from making decisions for you and ensures flow of information to family
You can outline end of life decisions including life support, organ donation, funeral/burial process to take burden off of loved ones by giving clear direction
Flexibility
With a “Living Trust,” you control your assets as Trustee and still get the benefit of those assets. The trust can be changed at any time to keep pace with your needs
You develop a relationship with an attorney who can be of support and assistance to your family into the future
TRUST VS WILL
Isn't a will enough? Why is a trust necessary?
| TRUST | WILL |
|---|---|
| Only nominates a fiduciary to make financial decisions | Gives fiduciary immediate authority to make decisions, without court intervention |
| Only selects beneficiaries, then court must protect them | Gives immediate protection without delay and cost of court intervention |
| Provides for NO management or control when a client becomes incapacitated | Gives trusted person immediate authority to make decisions for an incapacitated person |
| Provides no protection for minor children | Selects guardians and a financial manager for the estate, and sets guidelines for distribution |
Can't I just use a website or software to create my trust?
One of the main functions of an estate plan is to minimize expense and effort when a person is incapacitated or dies. However, minimizing the expense up front by only considering cost alone will often place a person or their assets in probate court due to a poorly written estate plan. An experienced attorney who has handled probates and knows how to avoid them can be a key resource for you and your family as you make this investment in your future.
Using websites or software can allow individuals to insert words and phrases that destroy the ability of the document to do its job. Even when seemingly correct, these documents can’t handle the contingency plans written into a quality estate plan. Every element that might be misaligned with the other parts of the plan threatens to destroy its efficiency. Even the best designed software is no substitute for the benefits of an ongoing, personal relationship with your own attorney.
Proper estate planning involves a plan that is carefully designed to meet your goals. It requires a cooperative effort between you, your attorney, and other appropriate members of your estate planning “team,” such as a financial planner, a life insurance agent, and a CPA. The plan should not be thought of as a product-oriented series of individual transactions, but rather a “team effort” to provide a comprehensive evaluation and subsequent development of a plan to protect you and your loved ones into the future.
The development of your estate plan is an ongoing process that evolves as your needs, goals, and family change, as the laws change, and as new estate planning tools and techniques are developed. It is a process of continually evolving entrance, growth, maintenance, and exit strategies. Proper planning requires professional thoroughness that respects the overall well-being of you and your family.
Your goals should include the following:
- Control of your assets during your life.
- A business exit strategy if you have an ownership interest in a business.
- Providing instructions for your care and the management of your assets for you and your family if you become incapacitated.
- Protecting the assets you leave your spouse, children or other beneficiaries from creditors and unscrupulous persons.
- Developing a plan of distribution that will leave your assets to whom you want, when you want, and with whatever controls you want.
- Avoiding probate.
- Saving the greatest amount of taxes and post-death administrative costs possible – not only in your own estate, but in the estates of your spouse and your descendants.
IT’S ALWAYS TIME TO CREATE A TRUST
Young family
Avoids an expensive probate if the family owns any real estate.
Avoids costly and restrictive court supervised Guardianship for children.
Keeps minor children protected from making poor financial choices into maturity.
Powers of attorney provide protection in a medical emergency.
Middle aged
The same issues apply as in the example to the left. However, for people in the middle of life when families are growing, typically more assets are acquired. A trust is essential for people with investment and/or ANY real estate, in order to avoid the very large cost of probate of those assets if they die.
Avoids VERY costly probate on assets, particularly real estate.
Probate threshold for CA real estate is only $65,000.00!.
Probates are lengthy court processes during which estate assets (including business) are frozen.
Elderly
The issue now can often be the value of the assets held, which creates a larger estate. Establishing plans for health care and end of life become more crucial.
Avoid or minimize very high estate tax (currently at 40%).
Allows client to plan for financial and health care decisions to be made by someone they trust if they are incapacitated.
Allows client to make end of life decisions clear to loved ones.
A PLAN TODAY KEEPS PROBATE AWAY
Cost of an Estate Plan
Fees vary significantly depending on issues like the size of the estate, the amount of tax planning needed, the complexity of the plan and its distribution scheme, whether or not the family involves children or grandchildren of different marriages, and if planning for beneficiaries with special needs is required. The expertise of the attorney, the amount of counseling and guidance offered, whether or not the attorney’s office will do the trust funding, and geographical area also affect the cost of an estate plan.
Prior to our consultation with a client, it can be difficult to gauge cost because it is like estimating what it will cost to cure an illness before the doctor has seen the patient. On the other hand, it is important for people to have a realistic expectation of what good planning involves. In very general terms, you should anticipate fees for an estate plan (for estates under $2.5 million) to be in the range of $3200-3800 for a revocable living trust. (Costs are lower for restatements of existing plans or if no real estate is owned.)
If you have legal plan coverage through your employer, your legal plan will cover all or part of the cost of your estate plan.
Additional fees may apply in estate plans that require complex tax planning, life insurance trusts, charitable trusts, deeding multiple properties, or planning for generation skipping. While there can be a variety of special circumstances that may add to the cost of an estate plan, you will be given a precise quote at your consultation so you know what to expect.
Cost of a Probate
By contrast, the cost of a probate is …..
| TRUST | WILL | |
|---|---|---|
| Portion of Estate subject to probate | None (for any property held in trust) | Titled assets in your name in excess of $50,000 gross value of real estate or $166,250 total assets |
| How long will it take to settle the estate? | Trust Administrations typically take 6-12 months, but distributions of funds and sale of assets can take place earlier | 1-2 years for a medium-sized estate and longer for larger estates. During this time, assets may be frozen and nothing can be distributed or sold without court approval. |
| How much will it cost to settle the estate? | The fee to prepare a well-crafted estate plan is generally $2,800-$3,500. | Administration of the estate by an attorney after death ranges between $2,500-$5,000. Up to 10% of the gross value of the estate in attorney & executor fees, court costs and other expenses. |
| Aside from financial considerations, what are some other differences? | Much less costly process that is handled out of court smoothly and simply with your attorney's help. You will have a knowledgeable advocate for any unforeseen issues that may arise. | Costly and/or time-consuming process in the court system to settle estate. Greater likelihood of relatives to have conflict over the wishes of the deceased. Complicated, multi-state probate for any clients who may own or inherit property in a state other than their own. |