Many people often ask, “I have a will, do I need a trust?” The answer can be complicated, but for many people, the desire to avoid probate necessitates doing some additional estate planning to supplement their last will and testament.
Many people are surprised to learn that having a will does not avoid probate.‘Probate’ is a word with two meanings. Specifically, it means proving to a court that a will is valid. More generally, ‘probate’ refers to the whole process of settling an estate disposed of by will – assembling assets,notifying creditors, paying taxes, distributing bequests and so on.
When people talk about ‘avoiding probate,’ they’re usually seeking to reduce the legal costs and the hassle associated with estate settlement. Over the generations, procedures that some states adopted to protect estates and heirs tended to fossilize into expensive red tape. Reforms have improved matters some, but probate is still costly, time consuming and public.
How much emphasis should you place on avoiding probate? Well, much depends on your personal circumstances. To some extent you may be avoiding probate already through the use of titling property in joint names, using beneficiary designations on insurance policies and retirement accounts, or through the use of Transfer on Death or Payable on Death designations.
Beyond these simple and inexpensive methods of avoiding probate, some people choose to do revocable living trusts in order to avoid probate and have a comprehensive plan of asset management during their lifetime, if they become incapacitated and of course, at their death.
Revocable living trusts are highly flexible arrangements for the management of cash,securities, real estate and other assets. After you set up such a trust, you remain in control. You may put in additional assets, make withdrawals or change your mind and revoke the trust. You are free to alter the terms of the trust –add new beneficiaries, for instance at any time.
Despite the flexibility, a revocable living trust is recognized as a separate legal entity and as a result, at your death the assets held in your trust would not be part of a probate estate. This saves the costs associated with probate, allows for immediate income and support for those you leave behind and provides privacy with regards to the terms of the trust.
Of course, there are many other reasons people consider revocable living trusts,including minimizing estate tax, charitable planning, setting aside money for grandchildren’s education and ensuring ‘family property’ stays in the family.
We have just scratched the surface of what can be accomplished with a trust. To learn more about these ideas or if you have questions about your personal situation, it’s best to talk with an experienced estate planning professional.