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Wills v Trusts


 A recent survey conducted by “Caring.com” indicates that 68% of Americans do not have a will (candidly, I thought it was much higher than that!)

While it’s unclear if the 68% have made other arrangements (e.g. transfer on death, Joint-tenancy provisions, present day gifts, etc) or just outright done nothing to plan their estate transitions, it’s also unclear what percentage use a Living Revocable Trust but is estimated at approximately 2-3% of the population.
 
Let’s discuss the differences between a Will and a Trust...

A will is a testamentary document. It’s also the tool of the Probate Court in the county you live in, and is there to provide the Court with some relevant certain idea of how your residual wealth should be distributed after expenses. The first line in your will typically reads: “I direct that all of my just and due debts be paid from my estate as soon as practicable.” Not your grieving Spouse, or your children; not your favorite charity, not your par amour. Your creditors. That would also include officers of the Court which is pretty substantial. Attorney(s), Judges, Bailiffs, Accountants, Appraisers; Even the Executor/Executrix get paid (although) there is no greater “thankless job” than being stuck as the Executor of an Estate, and they don’t have to post a bond, but can end up needing one.
 
Everything you own makes up your estate. Debt is also a part of your estate, as the act of settling it involves the legal system, and we all understand there’s no “free lunch” when it comes to legal services (dead or alive).
 
Notice it doesn’t say “as soon as possible”. “Practicable” lacs a sense of urgency. The Court obtains an appraisal of the entire estate of titled and untitled property, including chattels, collections, art, shoes and sox and underwear, plates cups, saucers, pots and pans, tools, and everything else. You owned it? They appraise it.
 
The problem with this is an appraisal isn’t a valid estimate of value, because there is no downside pull. A willing buyer and willing seller can negotiate/argue/dicker over the value of an object until they agree. That’s called a “fair market price”. The appraisal is only one side of this equation, the sellers opinion. This will over inflate the value of the estate. In most estates, the attorney charges a fee based upon that gross estate value, as does other Court officers. If there isn’t enough cash (Liquidity) in the estate, an auction/estate sale is sued to sell of the articles of inheritance as the Attorney does not want your “Hummell” collection as compensation; they want the cash value of that collection.
 
Additionally, the term “Probate” comes from the Latin term “Pro Batum” which means “a place to do battle”. Not to be confused with verbatim, the letter “u” really makes a difference here. This means anyone who has a claim can present their case to the Probate judge and be granted a hearing, and that can lead to litigation and contests to displace existing beneficiaries (and more commonly) displace the wealth of the estate and redistribute it outside the expressed wishes of the deceased (you). Whenever you hear of families having horrible fights over estates? Now you know where that comes from. The Will opens this can of worms. Oftentimes, the litigant will prevail over the estate and falily because they have a contingency attorney who works for free and takes a percentage of the settlement. The Heirs must defend the estate with an Attorney who works on retainer. It may be paid by the residual estate, but not likely. Defense is typically at the heirs expense.
 
An unseen pitfall of the Will and Probate Court is the need for the family to petition/appeal to the Judge to get permission to list/sell the home.
 
There are a LOT more reasons why you should avoid probate, and books are written every year explaining these points of concern.

Among these reasons could be
-No privacy. Probate is a matter of public record 9as is also) the content of your estate.
-No urgency to complete the process. Heirs want to be paid; attorneys want to be paid...forever. I know of estate cases in Probate court that are well over 100 years from the death of the Estate owner.
-Legal dispute - Once again, the very definition of the latin word "Pro batum" provides the only necesssary clue.
-A LOT of fees. Legal, appraisal, accounting, court, it seems endless, but Probate is a great economic stimulus for those who work in the probate system.
-Family fighting - Good solid families frequently turn into savages and beasts over getting their fair share of the residual estate. Probate invites these matters.
-Judicial discretion: The Judge can throw your will out and disregard it in part or in full, and the Court can rewrite it to meet the needs of the court.
-Lac of liquidity compels auctions. I used to LOVE going to Estate Sales...until I finally looked in the eyes of the family members who attended and watched me carrying their chattels away without any regard for their feelings about the matter. But, the fact is, the memebrs of the court system don't want your Mother's "Hummel" collection. They want the cash from the SALE of that collection without regard for the fact that you wanted that collection. They get paid before YOU do.

There are more unsavory aspects of the probate system, but as Matthew Broderick learned in that 1983 movie, "War Games "Probate is like "Geothermal nuclear war. They only way to win is to not play. How about a nice game of chess?"

Let’s now turn our attention to the “Inter-Vivos” Trust (commonly known as the Revocable Living Trust. As with corporations, the Trust is considered to be a living person who acts on the behalf of the estate. It’s very simple.
There are but four (moving parts):
  • The Grantor of the trust. Typically, it’s the owner(s) of the estate.
  • The Trustee. Typically is also the Grantor except if the trust is irrevocable (but that’s a conversation for another day).
  • The Successor Trustee. Takes over and executes the trust after both Grantors have passed on.
  • The Beneficiaries. These people and/or entities will inherit the corpus of the residual estate.
 
VERY simple. There is no court involvement beyond filing a simple form or two. An attorney is not necessary. None of the other “court officials” are needed, either. A trust is a private affair of the family and is not public record. A trust is incontestable. That means if your brother doesn’t like the split? The trust is almost impossible to sue, and generally, courts throw out such cases immediately. I knew a family who had every reason to sue their late daughter’s estate, and they spent over $50,000 in legal expenses just to be thrown out of court during the first 5 minutes of the hearing. You would have a better chance suing the attorney who drafted and advised the Client for malpractice than suing the trust itself. It’s considedd “bullet proof” protection from claims.
 
A trust also allows broad capacity for strategic planning for the legacy of the family. As an example, you have 2 children. One is 33 and living on their own, the other is 13 (whoops!) 😉 and still very dependent on you. It’s unfair for the elder son to get his share and the younger son must use his inheritance to just get through high school. Circumstances like this can be corrected with a trust. A will cannot do anything.
 
A trust also allows for a corporate Successor trustee. This is a very convenient thing, and safer for the family/Heirs especially if they demonstrate the inability to manage resources well. Unfortunately, many states consider investment and asset management incompetence at a felony level, and successor trustees actually do have a fiduciary duty (Albeit limited fiduciary) duty. Using a Bank trust department may be a great solution to that risk. Additionally, The corporate trustee has an infinite life span, doesn’t develop dementia, is insured against mal or misfeasance, and doesn’t have emotional ties to the beneficiaries. Bank Successor trustees are not often used, but they should be used a lot more than they are.
 
If you have a modest estate (under $10mm) a great resource for a Living Revocable Trust is www.legalzoom.com for a very modest price, you get a state specific trust, durable Power of attorney (DPOA), for medical AND for asset management, a Living will, a Pour-Over will (captures property and assets that you fail to register into your trust) that will meet your general needs and concerns and eliminate probate court involvement for your heirs. There are others, and you should shop to see what you can come up with. These trusts can be emailed to you as a template that you fill out and submit, and they complete the work and send you the product by email or by registered courier (e.g. UPS, FEDEX, etc) and they YOU take it to your credit Union or a notary service to sign it into effect. ***It is IMPORTANT/IMPERATIVE that you bring the titles of all your real property and bank/investment accounts to be titled into your trust. This is called FUNDING the trust. An unfunded trust will be put through probate court, settled as intestate, and the remaining estate after expenses will then be funded to the trust and distributed to the Heirs. This is insanely expensive and time consuming, and a grossly unnecessary cost.
 
Ultimately, the tool you choose to distribute your estate is entirely your business. I had a Client I repeatedly urged to get a trust to protect her two sons. After several months of gentle reminders, she interrupted me and said, “Dan, I know that you mean well, and that you care. I have no interest in making anything about my death simpler for my boys, as they have punished me with their disregard for decades, and I hope you can respect my decision with this.” Of course, the boys were schmucks, and they got what they deserved. They lost well over $100k, and took over 3 years to settle her estate.
 
I never said a word. 😉
 
***Dan Turner is not an attorney. He does not practice law. Nothing in this article or any other words spoken or written should be construed as legal advice. If you have concerns about the future of your financial affairs, feel free to reach out to me and I can help refer you to competent legal counsel.
djt
 
Daniel J Turner, Principal Advisor
Akamai Wealth Management, LLC
1088 Bishop St. Executive Centre Ste 3007
Honolulu, HI 96813
808-691-9200 office
808-464-5292 direct