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Is Everyone Laughing at Me Because I Don’t Have a Living Trust?If your friends are laughing at you for this reason you have some very odd friends! But the fact remains, you have probably wondered if you need a living trust or just a will. Indeed, many people I have worked with over the years that have a living trust are not sure what they have or why they have it.Today, we are going to change that. Before digging too deep, we need to get some terminology straight.When a person dies, he or she either dies testate or intestate. Testate simply means that they died with a will and intestate means they died without one. When a person dies testate, their will directs the distribution of their property. When a person dies intestate, the state law directs where things go. &nbsp;Sort of…That statement is accurate, but in the real world, there are some other factors. When a person dies, before we even look at the will, any property that is jointly owned with a right of survivorship, which is very common with assets owned by a married couple, automatically pass to the survivor. Then, of any property that’s left, anything that has a beneficiary designation, like IRAs, 401ks and life insurance, are transferred to the listed beneficiaries. And, any property that is subject to a transfer by contract is resolved. This means that, if the decedent had a valid contract to sell a car, for example, to someone else, that sale would still take place.Then, and only then, does a will come into play.Once the joint ownerships, the beneficiary designations, and the contracts are taken care of, anything left, which is usually just the property owned individually by the decedent, goes into the process called probate. And probate is the court-supervised process whereby the will is followed (or state law is followed for an intestate).Now, if you got a little pit in your stomach when you read the word “probate” in that previous paragraph, I’m not surprised. The press, financial planners and other attorneys have done a great job of convincing everyone that probate is second only to being eaten by hyenas. But, honestly, it isn’t quite that bad.But, if you are intent on avoiding probate, which may be a good idea, you now know you have a few options. Own property jointly, use a beneficiary designation or a contract. And, surprise! Property that is in a living trust when you die is considered passing by contract. So, it avoids probate.But what if you do go through probate?As mentioned, probate is a court-supervised process. This necessarily means attorneys are involved. An attorney will draw up the petition to open the estate, file an inventory of assets for probate, work with the executor of the estate to pay bills and distribute property, and prepare and file the closing statement. This process is usually about 7-9 months. In fact, in Indiana, creditors of the estate have a six month period to file claims.At every step in the process, the attorney is involved and is charging the estate which takes money from the ultimate heirs.For a simple estate, it is not uncommon for the attorney fees to be in the $3,000 to $5,000 range. The more complicated, the higher the fee. In fact, some attorneys calculate fees based on the size of the estate rather than the actual work done.If a decedent is subject to probate, that likely means he or she had a will. (They could have died intestate, too, of course.) And, in today’s dollars, that will likely cost around $750-$1,000 to prepare and execute.In essence, the decedent saved money now and paid later.Another option is the use of the living trust. Technically, we use something called a revocable living trust. This means that the person who created the trust can make changes or even cancel the whole things as long as they are alive and competent.In the trust, the person creating it (called the “grantor”) would outline processes such as who has the power to take care of him if he is incapable of taking care of himself, and where property should go at his death. But, remember, since property held in a trust at death does not go through probate, when the grantor dies, the process of settling his affairs is much simpler. There is no creditor waiting period. There is no probate. There is no $3,000 to $5,000. (There will likely still be some small legal fees for deed preparation, etc.)For the person opting for the living trust, they are likely paying about $2,500 to $3,000 when the trust is created.So, the living trust has two inherent benefits. First, is it likely less expensive in the long run. With the will, the total cost of the will and probate is likely around $4,000-$6,000. With the living trust, the total cost for creating and settling the trust is likely to be around $3,000.Second, It avoids probate.On top of all that, you can also include all of the provisions for distribution of assets at death, just like you would in a will.So, which one do you need?Unfortunately, the answer to that question is often up to personal preference. Do you want to save some money now and have your estate go through the probate process? Or would you rather pay a bit more now for future simplicity?There are a few situations where one or the other is warranted. For example, if you have property out of state, like a vacation home, the trust is a much better option. Also, if you have some family issues, meaning the kids don’t get along usually, a trust is best.But if you are likely to have an insolvent estate, i.e., you will owe more than your assets, the will is better. That’s because a will discharges your debts after the creditor’s claims are resolved. That doesn’t necessarily happen with a trust.If you are considering one or the other, let’s sit down and talk about it. Consultations are no charge.Tom Faulconer

Faulconer Law

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Is Everyone Laughing at Me Because I Don't Have a Living ...