What is a Revocable (Living) Trust?
A revocable Trust is a private document that you create to hold your assets during your lifetime and which instructs the successor trustee as to how to distribute your assets after your death. Because the Trust itself is considered its own entity, the death of you as its creator (Trustor) and first Trustee, does not require court intervention or supervision. Instead, when you create your Trust you will designate the person or person who will manage the Trust after your death (successor trustee) and distribute your assets as you instructed in your Trust. Because the Trust is a private document, there are no mandatory (probate) fees related to the administration of the Trust.
What is a Will?
A will is really just a public document that acts like a letter to the Judge regarding your interests – “Dear Judge, now that I am deceased, these are my instructions as to how I want my property distributed”. The judge’s duties are to read the instructions and see that they are carried out. In order to accomplish this objective, an attorney and an executor participate in the process. A Will is a public process overseen by the court, a process call Probate – see below. There are fees connected to the Probate process and those fees are determined by the gross value of the Estate’s assets.
What is Probate?
Probate refers to the legal process in which the Court oversees the distribution of a person’s assets after they die. All assets to be distributed must go through the court’s Probate system unless those assets are held in a Trust. If you die with a Will (testate) or without any form of written instruction for the distribution of your assets (intestate), your assets will be oversee by the Probate court. Administration of your asset via an uncontested Probate process, and under the current conditions in the California courts, is about 12 to 18 months in duration. During the Probate process, a personal representative of your estate must supply the court with a property appraisal and inventory of your estate’s assets. Notices to creditors of the estate are processed and all debt is paid under the Court’s supervision. Once the debts are paid and all information is adequately accounted to the Court, the remaining estate assets can be ordered distributed to the beneficiaries.
What are the advantages and disadvantages to using a Will as the core of your estate plan?
The advantages of a Will are:
- Potentially lower establishment costs in the creation of a Will. The cost for the creation of a Will can be lower because your attorney drafts the Will document but does not need to draft the additional documents required for the transfer of title and related items required for a Trust.
- Simplicity during your lifetime. A Will places little ongoing burden on you during your life. Once you have a completed Will, it can be stored away until needed at the time of your death.
- Court supervision to enforce wishes. Since the Judge and courts oversee your wishes as set forth in your Will, there is comfort that those wishes will be enforced. This is primary purpose of the Court.
The disadvantages of a Will are:
- A will must be probated. Since a Will must be overseen by the Probate courts, your heirs cannot receive your estate except through the formalities of the court proceedings.
- A will has mandatory fees. The fees paid to the executor and attorney for each probate are mandatory fees and are based on a percentage of the gross assets of your estate.
- Court supervision creates delay. The mandatory notice periods and the over crowding in the court system, means a substantial delay between the time of your death and distribution of your assets to your heirs. An uncontested probate administration is averaging about 15 to 18 months in duration.
What are the advantages and disadvantages to having a Revocable (living) Trust as the core of your estate plan?
The advantages of a revocable Trust are:
- Avoids court interference. Since a Trust is private document, the public court system is avoided as are all of the disadvantages associated with court supervision.
- Less expensive for heirs. Avoiding the court supervision of probate also avoids the mandatory fees associated therewith. The fees paid under a Trust are fees for the actual time and services provided by professions needed to assist the successor trustee.
- Eliminates lengthy delays. Avoiding the court supervision of probate also avoids the mandatory timelines and delays association therewith.
The disadvantages of a revocable Trust are:
- Establishment costs. Generally the creation of a Trust takes additional attorney time for drafting and transferring your assets into the Trust. Therefore the initial costs for creating the Trust are usually greater.
- Nuisance Factor. After a Trust is created, you must be willing to maintain the trust for the remainder of your life. This includes the proper titling of assets acquired after creation of the Trust.
- Possibility of Mismanagement. By removing the courts from the administrative process, there is no overseer of the successor Trustee you appoint to manage and distribute your estate. Selecting a trustworthy successor Trustee is critical.
What happens if I am alive but incapacitated by physical or mental illness?
One of the key components to any estate plan is the inclusion of both an Advanced Health Care Directive and a Durable Power of Attorney. These documents permit an individual, during a time when they have physical and mental capacity, to name an individual or individuals to stand in their place and make health care decisions (Advanced Health Care Directive) or asset management decisions (Durable Power of Attorney) if they become incapacitated. These documents are essential to saving the significant time and money required to seek a conservatorship appointment, the only means by which someone is legally able to act on your behalf. At a time when life and death decisions can be time sensitive and immediate access to funds to pay for care and services for the incapacitated persons can be critical, these documents best help family and friends to care for a loved one and to be guided by the incapacitated person’s wishes.
How do I plan for my blended family?
Today our families are comprised of many unique and varied components. The ability to distribute assets after your death to the person or persons of your choosing is a key component to a comprehensive estate plan. Either a Trust or a Will can provide for terms and conditions that permit control of your assets after your death. For example, you and your spouse are married but each of you has children of a prior marriage or circumstance. Under this example, you may permit your surviving spouse access to use of your assets during their lifetime but after their death, your assets are to be given to your children, not the surviving spouse’s children. A well written estate plan can ensure your distribution goals are meet and provide you with the peace of mind that your intentions will be effectuated.