My last article talked about what a trust is. Now I’m going to tell you why someone would go to the trouble of creating a trust in the first place. Ready? The short answer is, because the trouble one goes through to create a trust is generally minuscule compared to trouble left for family members when someone dies without a trust. But let’s go a little deeper…
During our lifetime, we can transfer our assets with a simple stroke of the pen. By signing our name to a piece of paper – usually a contract of some sort – we can buy, sell, or exchange almost anything with almost anyone.
But after we die, how do we transfer the assets we own? It comes down to two options. We can either preplan to transfer our assets how and to whom we choose, or we can let the state transfer our assets for us once we’re gone. The first option is handled through a trust. The second option is handled through the court process called probate.
So why not just let the great state of California handle things for us? Well, probate is:
Expensive. Probate fees are statutory. In other words, they are written into California’s laws and based on a percentage of the total value of your estate (your estate = all your stuff). Probate fees consist of filing fees, court fees, attorney’s fees, executor’s fees, bond fees, referee fees, appraisal fees, etc. All totaled, probate fees generally amount to between 5 and 10 percent of the value of the estate. The fees for administering a trust are generally significantly less than probate.
Public. Value privacy? Probate is a court proceeding so everything is a matter of public record. EVERYTHING. Not only can your reputation and legacy be dragged through the mud but anyone who cares to look (and there are plenty of scoundrels and con-artists who do look) will know how much your beneficiaries are inheriting, when they will receive it, and exactly where to find them. A trust, on the other hand, is completely private with no public record or court involvement necessary.
Time consuming. Probate in California takes on average, around a year-and-a-half. And that’s only if things don’t get complicated. Probate can, in fact, take years. And keep in mind, throughout the probate process, the surviving family members have little to no access to the assets being probated. A trust, however, usually only takes months to administer and distribute, not years.
Emotionally draining. Most people (other than lawyers, that is) don’t like being hauled into court. Not only does it cost time, money, and privacy, it also takes a toll emotionally. Rather than grieving for your loss on your timetable, you are forced onto the Court’s schedule. In comparison, administering a trust, because it is handled in private and not through court, can take place at the trustee’s pace and comfort level.
Loss of control. Finally, even with a will, probate means a loss of the ability to provide protection for your heirs’ inheritance against bankruptcy, lawsuits, and divorce. Going through probate also means giving up much of the ability provide your family with tax advantages, limits on how they may spend their bequest, or guidance as to what age (or maturity level) they should receive their inheritance.
It all comes down to making an already very difficult situation (your passing) more difficult or less difficult on the people you love most in the world. If your choice would be to opt for “less difficult” you understand why people go to the trouble of creating a living trust.
I sincerely hope you and yours have a wonderful new year and an outstanding 2017. Happy New Year!
Dedicated to empowering your family, enhancing your wealth and establishing your legacy,