Having an estate plan is essential if you want to protect your assets and provide for your family upon your passing. One option is to do nothing and trust the government or the court to get it right. A second option is the traditional methods of estate planning which are a Last Will and Testament or a Family Trust. Understanding the differences between the two is crucial if you want to develop the best estate plan possible.
How Is a Will Different Than a Trust?
A Family Trust is different from a Last Will and Testament because of how the estate is distributed. If you select a Will, it will require a probate court action to be handled properly. During probate, a probate court assesses the validity of a decedent's (deceased individual's) will and ensures their property is distributed correctly to beneficiaries or seized by creditors (if necessary).
However, a Family Trust should allow a distribution of assets without the necessity of opening probate. One of the reasons to do a Family Trust rather than a simple Last Will and Testament is the expense of probate and the time it takes to complete the process.
Why Should I Avoid Probate?
The average probate case takes eight to twelve (8 to 12) months to complete. During that time, the heirs do not receive their share of the estate. A rough estimate of the attorney's fees for a probate case is about 5% of the estate. So, if you have an estate worth about $100,000.00, the attorney will do about $5,000.00 worth of work.
An estate worth approximately $1,000,000.00 will often require the attorney to do about $50,000.00 worth of work to get it successfully through the probate process. However, extraordinary services for an estate can cause these fees to go up.
These types of services would include selling real estate out of the probate, keeping your business up and operating, securing a loan to pay your debts, or even litigating when one of the children contests the will. These things can add a large number of legal fees to the probate process, which in turn reduces the amount going to the heirs.
In probate, your Executor will have to get permission from the court for any actions they take, including getting into any safety deposit box, closing bank accounts, selling a vehicle or real estate, etc. That court involvement is meant to protect the assets from being mismanaged or stolen, but it takes time and costs money.
What Can a Trust Do for Me?
A Family Trust is a revocable trust, meaning you retain the right to change it or revoke it entirely, such as in a divorce situation or when you want to disinherit a child.
The number one benefit of a Revocable Family Trust is the ability to avoid Probate Court. The Trustee you leave in charge of the estate will be able to handle all the assets owned by the Trust without having to get a Probate Courts permission to do so. They can run your business, can negotiate with your creditors. In a revocable Family Trust, assets owned by a Trust are controlled by the Trust agreement terms, and there is no need to involve the court.
When you create a Trust, you become the Trustee who manages all the assets of the Trust. Once you pass, the Trust simply puts your Successor Trustee in charge, and that Trustee must follow the terms of the Trust agreement in handling your debts and distributing the assets to the beneficiaries.
A Family Trust usually does not need to have an attorney doing a lot of work on the estate. The Successor Trustee can meet with an attorney to get advice or assistance, but it is usually much less expensive than the 5% required in the probate process.
In the long run, if you have a house or a business, a Family Trust will most often save the estate from large attorney fee bills.