As estate planning attorneys, we’re often questioned about legal matters while shopping at the grocery, playing at the park, waiting in court or chatting at a dinner party. Most frequently, we’re asked, “Do I really need an estate plan?” Then, quickly, “Should I have a will or should I have a trust?”
Great questions! Being conscientious lawyers, our answer is often, “Well, it depends.” It depends, because the value of doing a will versus doing a trust depends greatly on the individual family dynamics, size of the estate, cost and most importantly, the relative pros and cons of what the probate process would mean in each decedent’s circumstance.
Let’s elaborate. In this great state, both a will and a trust can ensure that your property passes to your intended beneficiaries. Both documents, if well drafted, likely incorporate state and federal tax planning to minimize any estate taxes that are potentially due upon your demise or the death of your spouse. (For most folks, this isn’t a big concern, unless you’re jointly worth over $10 million.)
For our clients, it isn’t really so much of if they should have a plan, it’s a question of what kind of plan best suits your family’s needs and what kind of plan will shorten the amount of time needed to settle your affairs.
Know this. A valid will still requires a very public probate proceeding in a local superior court before a distribution to your intended heirs, while a trust will allow you to bypass probate and keep your affairs entirely private. Here’s the real deal – if you do a will, and your estate exceeds the small estates threshold ($150,000 fair market value), your children or other heirs likely won’t see a dime until the court issues orders a distribution, which is how a probate proceeding officially ends. In Orange County, Los Angeles and the Inland Empire, probate can take a year or longer! The process entails publication in a newspaper, notice to creditors, inventories and appraisals, notice to family members and other government entititles and unrelenting court oversight.
Even though it can be costly, there are times when a will is the best option, even though it can be costly. See Understanding Probate. [link to other blog post] Remember, attorneys and executors each get paid a statutory probate fee based on the fair market value of the estate (the fee doesn’t take liabilities into account). The sliding-scale fee in a California probate is as follows:
- 4% of the first $100,000
- 3% of the next $100,000
- 2% of the next $800,000
- 1% on the next $9,000,000
- 5% on the next $15,000,000
- A reasonable fee thereafter
* See Cal Prob. Code § 10810 and § 10800 (fees) and § 10811 (extraordinary services)
Other times (most of the time), a properly funded trust is the way to go. A well-drafted trust should hold title to your major assets such as your home, your brokerage accountsyou’re your valuable collectables. This way, your heirs will be able to inherit those assets as soon as they’ve been identified, taxes and creditors have been paid, and all of those legally entitled to notice have been formally contacted.
Unlike probate, a trust administration (sometimes called a trust settlement) can be finalized as quickly as 180 days. Barring contests and litigation, there is usually no court oversight and the nature of what is passed along to your heirs remains completely private. With a trust, you can choose whether or not to compensate your chosen trustee. You can also decide, in advance, how much is distributed to your heirs, and when. For example, if you’d only like your children to receive 20% of their inheritance at age 30 and the remainder at age 40, you can do that with a trust. You can build in restrictions and even asset protection provisions for your loved ones in a a simple, revocable trust. It just takes proper planning and foresight. What a gift to your loved ones!
So, in order to sort out what’s the best estate plan for you, we need to get to know you. You need to conduct a cost/benefit analysis of what plan works for you. You need to know the assets in your estate. Depending on the size of your family, the nature of your assets, and the restrictions you intend to place on distribution to heirs, a qualified attorney can help you decide the least expensive and most efficient tool for you. Nine times out of ten, a trust ends up being the best option.
Let’s summarize the benefits of a Trust over a Will:
- Trusts are private. Probate is a matter of public record.
- Trust assets can be distributed quickly. Probate can take months or years!
- Trustees can control the time and nature of asset distribution to beneficiaries.
- Probate fees are fixed and costly. Trust fees are flexible.
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