Planning Your Estate: Choosing Between a Will And a Trust

Wills vs Trusts

Wills go through Court when you pass away. Trusts which are properly set up don’t. The Court Process is known as Probate and is very expensive. A Trust includes the same distributions as a Will, namely, what happens to your assets when you die, but if it set up correctly it’s much more comprehensive than a will and offers additional benefits, including Probate avoidance.

Not All Trusts Are Created Equal

With our Trust, your estate will likely not go through a Probate. The reason for this is that our office assists with the transfer of your assets into the trust as part of our fee. The good news is that our fee is comparable to those offices that sell Trusts where the assets aren’t transferred and don’t avoid Probate.

You may wonder why other offices don’t transfer or ‘fund’ assets into the Trusts for their clients. Most offices don’t get involved in the transfer of assets, because it’s complicated and takes a great deal of time. Instead of transferring assets for their clients the attorneys leave that work up to their clients. They tell them during the Trust signing ceremony or in a closing letter after the signing that asset transfers need to be done for the Trust to work. From our experiences dealing with numerous trusts done by other attorneys is that those trust are rarely funded. Maybe one out of every hundred trusts the firm sees will avoid Probate. The problem is that when their clients walk out the door of the office they think their Trust is complete. They think that they’re protected. Unfortunately, most people who do Trust Planning never transfer their assets into the Trust name, so their estates will go through Probate even though they thought they were protected. Let me repeat, the ‘dirty little secret’ is that the estates of most people who have Trusts will go to Court.

Our Firm

In our 30+ years of practice, we have made sure that our clients’ trusts work when they pass away. They work because we assist with the asset transfers from the outset and provide our clients with a plastic trust card to carry in their wallet, with their Trust name predominantly visible, so that when they buy a new asset they buy it directly into the name of their Trust.

Our clients are reminded every month that their assets are in their Trusts when they open their mailbox and look at the names on their statements. Clients with properly funded assets receive their financial statements and county property taxes in their Trust name, not their own. Our statements come to the David Living Trust.

Sometimes when our firm tells people that we’re changing their assets into their trust name they’re worried that their access to their accounts will be affected, their taxes will be higher or that they’ll have to fill out their returns differently, but this isn’t the case. You and your trust both follow your social security number. You can still get a mortgage, access your money whenever you want and it won’t change your taxes.

Trust & Cost Planning 

While Trust planning is more expensive than will planning on the front end, it’s much less expensive in the long run. The cost associated with Probating an estate is 5-7% of the total value of the Probate estate. The personal cost in terms of time and energy is also a problem. Probate takes around a year to complete. With correct Trust Planning there is generally no Court involvement at death, so the process is greatly expedited and the cost is greatly reduced.

Cost can be a factor and while we understand the cost of doing Trust Planning is a deciding factor, and the cost is a bit more than the price of Will Planning, the savings in time and expense to your Estate using a Trust Plan versus using Will Planning and going through Probate should be thoroughly calculated when making your decision.

To see the true savings incurred by using a Trust Plan over a Will Plan let’s look at the math in three different size estates where either a single person passed away or the surviving spouse in a marriage died. We’ll look at a $100,000 Estate, a $500,000 Estate and a $1,000,0000 Estate.

The Probate of the $100,000 Estate will take at least one year in court. With expenses calculated at 5%, the Probate of the $100,000 estate which was comprised of accounts and a small piece of real estate will likely cost the Estate $5,000.

The Probate of the $500,000 Estate, which consisted of a few CDs, a brokerage account, a home, a timeshare, a money market account, a checking account, a credit union savings account and two cars, will also take at least one year in court.  Calculating the Probate expenses at 5% will likely cost $25,000 or more.

The Probate of the $1,000,000 Estate which includes an LLC, a few pieces of real estate, a couple of brokerage accounts, a vehicle, a boat and several other accounts, will also take at least a year to conclude, but since it’s larger in worth the fees, calculated at 5%, will likely exceed $50,000.

Probate fees are not just attorney’s fees, but often attorney’s fees may make up the largest portion of the fees. Attorneys in North Carolina receive a statutory fee of up to 5% of the Probate Estate. Some counties systematically award 2.5% to the attorneys and some award 5%. With that said, attorneys should be hired to handle a Probate. A knowledgeable Probate attorney will guide your estate through the Probate Process. The attorney will also limit the personal liability of the person you named to handle your estate. Probate is not intuitive or easy. There are laws and systems which must be followed. We’ve seen more than a few do-it-yourselfers try to save money handling the probate on their own only to get themselves in a lot of trouble because things went wrong and they didn’t realize they would be personally responsible.

The Court receives fees in every Probate. There are filing fees, death certificate fees and administrative fees. The administrative fees run $4.00 on every thousand dollars of assets taken through probate and cap at $6000. There are also fees which run several hundreds of dollars for the posting of a Notice to Creditors which must also be run in the newspaper. Bonds must also be procured for many estates and the fees for such bonds may run thousands of dollars. There are also fee awarded in North Carolina to the person or entity you name as your Executor. The Executor is entitled to a statutory fee of as much as 5% of the estate. To make a long story short Probate is expensive.

A Personal Story

A few weeks ago, my husband lost his beloved mother. As one would likely expect, my family members all have Trusts. Because my mother-in-law had a trust, her Estate is finished. The assets have been transferred and the work is done. There was no Court involvement. If she had died with a will, for the next year our family would have been processing the Estate through the Court System. So, a trust done correctly avoids Court and a will is a ticket to Court.

Contact Law Offices of Cheryl David if you need help planning your trust. 

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