Special Report

SMALLER ESTATES AND LIVING TRUSTS

by JoAnn Jackson Kalama, Esq.
Copyright © 2004-2006 JoAnn Jackson Kalama.  All rights reserved.

I am often asked if a trust can provide advantages for someone whose estate is not large enough to require payment of estate taxes. The answer is YES for the following reasons:

T Avoid Probate. If you don?t have a will or trust, the laws of the state in which you reside at the time of death will determine how your property is distributed and the court must supervise distribution. If you have only a will, your will must be verified by the court before it can be enforced and the court must be sure that your debts are paid and your property distributed according to your will. This is called probate. Property held in a trust can be distributed according to the terms of the trust without court supervision.

T Probate Is Expensive, Time Consuming and Public. Legal fees and fees to your executor are determined by law as a percentage of the value of the estate and must be paid from the estate before distribution. For example, the attorney?s and executor?s fees for a $1million dollar estate are $23,000 each for a total of $46,000. The court process takes a minimum of 6-8 months and may take as much as two years. During that time your assets are essentially frozen. If your family needs money to live on, they will have to ask the court for a living allowance. Probate files are open to the public.

T Avoid a Conservatorship. If you become physically or mentally disabled, you could end up under the control of the probate court prior to your death. This is called a conservatorship. If your assets must be accessed to pay your bills, or if your property needs to be sold to provide for your needs, an order from the probate court in a conservatorship proceeding may be needed. If you have a trust in place, your successor trustee can take control of your assets without court intervention.

T Joint Tenancy Ownership only Postpones Probate. When one joint owner dies the property passes to the other without probate. However, when the second joint owner dies, or if both owners die at the same time, the property will then be subject to probate. Further, there are some pitfalls to joint tenancy. Your property is exposed to the joint owner?s debts and both signatures are required to sell or refinance. If one of the joint owners is incompetent, again the probate court will be required to sign on behalf of the incompetent owner through a conservatorship proceeding. There are other pitfalls and income tax ramifications to joint tenancy ownership.

T Flexibility. A trust provides more flexibility in estate planning than joint ownership. You can provide for many beneficiaries in many different ways in a variety of situations through use of a trust. Joint ownership limits the number of beneficiaries that are practical and doesn?t provide for contingencies.

T Asset Protection for Blended Families. When couples with children from previous marriages marry and blend their families, trusts can provide a way to keep assets separate and insure that the estate of each parent is preserved and passed on to the children of each respective parent. Such trusts can help avoid hurt feelings and family disputes which can arise in such situations.

It should be noted that there are circumstances in which a probate or conservatorship is the preferable route to follow.  Professional advice should be sought to help you determine the best solutions for your particular situation.

RELATED LINKS

Estate Planning Questionnaire for Husband and Wife

Estate Planning Questionnaire for Single Person

2006 Estate Planning Fee Schedule

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