06 Jul Trust vs. Wills: Which is Better for You?
I already have a Will. I’m all set . . . right??
You’ve probably heard and read that “everybody” needs a will. While that’s true to a certain extent, it’s definitely not the end of the story depending on your family situation.
For example, if you have a business, blended family, or own property in multiple states, the truth is that a Will probably isn’t enough for you. Don’t get me wrong, if you’ve never done any estate planning and don’t have a Will or any other documents in place, you should absolutely get your Will prepared ASAP. That is emergency “do-it-now” planning. It’s critical to have documents like a Will, powers of attorney and healthcare directives prepared if you don’t have those.
But, if you already have those documents in place, don’t stop there. Especially if you have a business (or multiple businesses), children from a previous marriage, or own properties in multiple states, there are additional planning strategies that can save you and your loved ones a lot of time, frustration, and money. Most people don’t know about these strategies because there’s too much confusing information (as well as misinformation) out there. But I’m about to shed some light on this often confusing area so you can take action to protect yourself and your family.
Everything’s Frozen
Whenever someone dies, by law, all their assets are frozen. What does “frozen” mean? That means that for any bank accounts solely in their names, you can’t use those funds. If their house is solely in their name, you can’t sell or refinance the house. Any cars or other vehicles they own, you can’t sell (although you may be able to still drive them for a very limited time if your state law allows).
Okay, so how do you get them unfrozen? To do that, your loved ones will need to go to court and get the court’s blessing to allow you to take control of the assets and distribute them. Having your loved ones wading through court and government red-tape to get money and possessions you’ve gifted them while they’re still grieving your passing is not what most people want for their loved ones.
You may think, “Okay, fine, going to court is not ideal but how bad can it be. How long does it take to get the court’s blessing – a couple weeks, maybe?” Nope. Try minimum 9 to 12 months. In many cases it can take 12 to 18 months or longer.
And that’s saying nothing about your privacy. There is none. In probate court because, by law, Wills are public record. Anyone can call the court and get a copy of your Will and any information in it about who you gifted money to (and who you didn’t) as well as assets you have. That’s the nature of the public court process.
Oh, and last but not least, the probate process is expensive. Before your loved ones see a penny of their inheritance, the probate process will take an estimated 2% to 5% of the value of your estate right off the top. That means for a modest estate valued at $500,000, probate court could cost your family $10,000 to $25,000. With an estate value of $1M, your loved ones could be looking at probate costs of $20,000 to $50,000 or more. While these costs aren’t technically a tax, they might as well be. It’s your hard-earned money going in government, courts and others’ pockets rather than to your loved ones.
What can you do?
As eye-opening and unnerving as the above information may be, there is a way to avoid this. As we’ve talked about in previous articles, a properly structured living trust can avoid probate and save your loved ones frustration, confusion and money in one of the most vulnerable times in their lives. This type of planning is a Godsend you can give to them, but it is crucial you get it done right. Seemingly minor technical errors can completely invalidate your plan. I’ve seen too many estate plans fail because they were either a DIY/online-legal form job or because they were prepared by a law firm inexperienced in estate planning laws. Make sure you get the right guidance by discussing this decision with your estate planning attorney, CPA, and financial advisor.
