PB Law Blog... Trusts and Stuff

My best friend (who is a legit big deal in the world of international finance), texted me the other day:  

“Hey! What do I need, a Will or a Trust?”

Did you know that simply having a Last Will and Testament (“Will”) likely ends up with your estate being handled by a Court?  (She did not).

I figured if she was in the dark, others must be pondering this question.  Today, I’m sharing your four options to avoid court and ensure your estate is handled seamlessly...

When most people think of estate planning, they think of writing a Will.  While it's a start, you maybe surprised to learn that a Will alone isn’t going to avoid court or the dreaded probate process. 

• Why?  A Will’s main function is to direct the court on how to distribute your assets and handle your debts - it's basically a letter of instruction to the judge.  

However, most people want to avoid court altogether!   Here are the four basic options to avoid the hassle - and cost - of probate or guardianship court. 

#1 - Don't Own Anything!

If you don't have any assets (or if you give them away), there’s nothing left to pass through probate court. 

• Pros: Easy.
• Cons: You own nothing.  

#2 - Add a Co-Owner

By designating a co-owner - with rights of survivorship - the surviving owner will inherit the asset upon your passing.

• Pros:
  • Relatively simple post-death administration.
• Cons:
  • You're giving away half of that property / account / asset!  You can't undo or rewind this action. 
  • To that end, you're also opening up that asset to any claims against the co-owner (think: the other person gets divorced, gets sued, etc.). 
  • Does not address all circumstances, such as in the unfortunate event of a simultaneous death.
  • Tax considerations! Potential loss of step-up-in basis, state + local property tax reassessment, transfer tax - to name a few.

#3 - Designate Beneficiaries for all of your assets

With a designated beneficiary, ownership typically transfers when the beneficiary provides proof of your passing (i.e. a death certificate). 

• Pros:
  • Used most often for retirement accounts (required) and life insurance payouts.
  • Simple - in theory.
• Cons:
  • This approach must be continuously and pristinely maintained. 
  • May be impossible to cover everything, as there are certain assets that don't allow for beneficiary designations. 
  • If you have a more complex estate (i.e. accounts @ a bunch of different banks, businesses, rental properties, etc.), it's a ton of work.  In the long run, it's much more burdensome than creating + funding a Living Trust or other planning mechanisms. 
  • It's easy make a mistake:  If you forget to name a beneficiary, it's likely it will end up in probate court
    • For example, in Nevada, w/ a probate threshold of $25K (in the aggregate!), just one account left untended could trigger a probate. 
  • Doesn't work if you're temporarily (or permanently) incapacitated - it just applies after death.  This leaves you vulnerable to a formal guardianship / conservatorship, which has to be handled by the court - and is a nightmare. 

#4 - The Gold Standard - Transfer your Assets into a Trust

Trusts come in various forms, each with specific purposes.  Here, we're referring to the most common, a Living Trust.

• Cons: 
  • Time + $ investment in setting up your plan 
• Pros: 
  • Because a trust doesn’t die, anything it owns avoids the probate process altogether.
  • Same is true during your lifetime - a trust can't get sick.  if you're unable to handle the trust due to an illness or other issue, you have named someone to take the reigns, which avoids the horror of guardianship / conservatorship court.
    
  • Your trust does a lot more than just avoiding probate - it can be customized with all sorts of provisions to provide protections and guidelines for your beneficiaries, in addition to tax planning considerations. 
  • You decide who handles the trust + its assets if you're unable to you (your "Successor Trustee"), while remaining in control while you're alive + well. 
  • Pro Tip: if you update your trust to add/remove beneficiaries, you just have to update the trust - not every single account / property / asset.   

Each of these options carries significant implications, and it’s crucial to carefully analyze the consequences as they apply to your particular situation.  Make sure to consult with an attorney whose practice is focused in estate planning to ensure you choose the right strategy for your goals.  You can learn more about PB Law's unique approach to the Planning Process here.

Ready to get planning checked off your to-do list? It’s easier than ever to schedule a consult with our Estate Planning attorneys – if you’d like more info, send us a Consult Request!

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By:  Tiffany Ballenger Floyd, Esq. |  Managing Partner | Licensed in CA + NV

Photo Credit:  Thanks to Daniel Gonzalez (@overlyawesome) | Unsplash