FEBRUARY 2, 2015 VOLUME 22 NUMBER 5
Last week we suggested some of the reasons why you might think about having a revocable living trust as part of your estate planning documents. This week we’ll try to turn it around, and give you ten reasons why you might prefer to have a will (“just” a will) instead.
Let us be clear about two important points before we begin. First, our views are not shared by all lawyers. Some — especially those practicing in states with famously simple probate procedures — are vigorously opposed to revocable living trusts. Arizona’s probate procedures are quite simple; they are much simpler, actually, than most people think they will be. We are not opposed to revocable living trust, though. We tend to think of the question as a cost/benefit analysis. The trust will almost always be a more efficient plan, but the initial costs may not be justifiable in your circumstances.
Which leads to our second point: the cost of establishing a revocable living trust will almost always be considerably higher than the cost of preparing a will instead. How much more costly will depend on your situation and will vary quite a lot from lawyer to lawyer, but the benefits of the living trust need to outweigh those costs before you make the plunge.
With that background let’s see if we can come up with ten reasons to favor a will rather than a living trust:
- 10.There’s some reason you really ought to subject your estate to the probate process. Probate in Arizona is much less formidable than people think, but most people still want to avoid it. But there are two good things that happen with probate: (1) court supervision of the management and distribution of your assets, which might actually be beneficial in some cases, and (2) clear resolution of any remaining claims against your estate. That last one is usually more important for professionals — if you are a doctor, or lawyer, or architect, it might be advantageous to intentionally require a probate of your estate to get protection against possible lingering malpractice actions, for instance. There are actually ways to do that without filing a probate, but that’s a discussion for another day.
- 9. You really want to understand your estate planning documents. Trusts actually can be a little daunting to understand. We at Fleming & Curti, PLC, take pride in our ability to write legally sufficient provisions in something approximating the English language, but we know that even our documents can be hard to understand. That’s a bigger problem for trusts than for wills. We can overcome this problem, of course, but only if you want to participate.
- 8. Your personal situation is completely stable. You say you’re widowed, and have just one child? And that your child is completely trustworthy, has already provided for her own children’s educations, and doesn’t need any help or support from you? Great. Your plan is likely to be very uncomplicated, and we probably can come up with a way to execute it without the cost or hassle of creating a trust. Of course, things change — let us know if your child’s situation changes or the simplicity of your personal and financial situations unravel.
- 7. You love paper, and take good care of it. Do you have a notebook that includes recent statements from all of your accounts, together with your accountant’s, your financial planner’s, your attorney’s and all your doctors’ names and contact information? We love you. You might not need a trust because you’ve already done a lot of the organizational work for your family. Please keep that notebook up to date.
- 6. You hate paper. Maybe you are the opposite of the person described above. You can’t even remember all of your bank and investment accounts, and have a big, unsorted pile of paper sitting on the floor next to the desk in your office. In that case, the creation of the trust — and the important task of transferring assets to it — might overwhelm you, and make the will a more attractive option. Of course, you are the person who would benefit most from the organizational structure of creating and funding a trust, but there’s no magical incantation we can include in the trust that would make it happen automatically.
- 5. You are thrifty. Do you think regular lawyer visits and the cost of estate planning are just too high? Do you suspect that all of this is just an attempt to get you to part with your hard-earned money? You might benefit from a trust, but you might also be anxious about whether you are being oversold. Even if a trust is a slightly better option, your desire to save the extra costs needs to be acknowledged.
- 4. You have already completed beneficiary designations for everything. Great! You might well have worked around the value of a living trust, and at a much lower cost. Of course, you need to think about future changes. What happens if a named beneficiary dies? What about the possibility that you spend more from your bank savings than from your brokerage account in the next ten years? Or the reverse? What if there’s a new grandchild, or a marriage or divorce, in your family? Of course changes happen whether you have a will, a trust or beneficiary designations — but in the case of beneficiary designations, you might need to make changes to a dozen different accounts/assets. And you need to actually do it, promptly and completely. Beneficiary designations are a great alternative, but require your continued diligence.
- 3. Your assets are uncomplicated. Maybe you have only a few different assets, and they are typical. You have a house, a single bank account, an IRA, a car and a single brokerage account? That’s pretty uncomplicated, and there might be other options (beneficiary designations, for instance). Oh, wait — you also have life insurance, and a half dozen government bonds? That starts getting a little more complicated. A small art collection? Three different banks? Hmmm.
- 2. Your estate is worth less than $75,000. That’s a magic number in Arizona. That’s how much your beneficiaries can collect without having to do a probate proceeding. More good news: that figure is the amount subject to the probate process that you can transfer. In other words, if your house has a beneficiary designation, and your bank account has a POD (pay on death) entry, then your heirs can use the $75,000 rule to collect your car and that small credit union account. You might not need a trust to avoid probate.
- 1. The odds of your estate plan “maturing” (that is, the odds of you dying) in the next, say, five years are very slight. If you are 25, married, and leaving everything to your spouse, most of the benefits of a living trust will only appear if the two of you die at about the same time. While that could happen, it’s not too likely. The additional cost of a living trust might not make any sense in your circumstances. Please note that we are assuming that you’ll get back into your lawyer’s office in five years.
Does that help? We hope so. We do want to help demystify this decision.