top of page
Search

WILL VS TRUST-DO YOU NEED A TRUST TO AVOID PROBATE?

Note: Go to the end to read about Pets and Will vs Trust


Gallup's latest polling finds only 46% of people in the US, have a legal document that describes how they would like their money and estate to be handled after their death. (2021) Of that 46%, only around 10% prepare a trust vs a will. This is significant because trusts allow your estate to avoid probate by directly transferring assets to the person named in the trust in the event of the property owner’s death.

A Simple or Testamentary Will is a legal document that stipulates how to distribute your assets upon your death.

A Living Trust, or Inter Vivos trust is an amendable legal document that allows the grantor to create a separate legal entity, the trust, and retitle assets in the name of the trust during their lifetime. The grantor designates a trustee to manage those assets on behalf of the grantor or named beneficiaries.

Listed below is a brief comparison of wills vs trusts.


Generally speaking, setting up a trust is the way to avoid probate and a simple will does not. However not all wills go to probate and not everyone needs to set up a trust to avoid probate. The probate rules vary from state to state so it is important to consult a lawyer about the laws in your state. Many lawyers will offer a free initial consultation to ask questions about your own specific situation so that you can decide how to proceed.

If you die without a will ("intestate") your estate will go through probate. This means that a probate court must determine how to distribute assets. In some states, probate can be a lengthy, drawn-out process and involve hefty costs. Without a will, there are usually even more hoops to jump through along with additional time and cost. In all states, probated wills become public record, which means that anyone is able to check out the details of your will.

The more complex your situation, and the more assets you have to distribute, the more likely it is that you will benefit most from a living trust.

Recent estimates calculate that Americans spend roughly $2 billion on probate costs each year, with up to 75% of that cost going to attorney’s fees. With costs like this, it’s no wonder many property owners seek to avoid probate whenever possible through methods like trusts and joint ownership.




HOW TO AVOID PROBATE

1. Revocable Living Trust

Living trusts were invented to let people make an end-run around probate. The advantage of holding your valuable property in trust is that after your death, the trust property is not part of your probate estate. (It is, however, counted as part of your estate for federal estate tax purposes.) That's because a trustee—not you as an individual—owns the trust property. After your death, the trustee can easily and quickly transfer the trust property to the family or friends you left it to, without probate.


That’s not to say you can only avoid probate by setting up a living trust. Here are some other important steps you can take to minimize the risk of going into a lengthy probate:


2. Pay-on-Death Accounts and Registrations

If you don’t want or need to set up a living trust, you can convert your bank accounts and retirement accounts to payable-on-death accounts. You do this by filling out a simple form in which you list a beneficiary. When you die, the money goes directly to your beneficiary without going through probate. You can do the same for security registrations, and, in some states, vehicle registrations. More than half of the states also now allow transfer-on-death real estate deeds that take effect when you die.


3. Joint Ownership of Property

Several forms of joint ownership provide a simple and easy way to avoid probate when the first owner dies. To take title with someone else in a way that will avoid probate, you state, on the paper that shows your ownership (a real estate deed, for example), how you want to hold title. Usually, no additional documents are needed. When one of the owners dies, the property goes to the other joint-owner—no probate involved.

You can avoid probate by owning property as follows:

  • Joint tenancy with right of survivorship. Property owned in joint tenancy automatically passes, without probate, to the surviving owner(s) when one owner dies.

  • Tenancy by the entirety. In some states, married couples often take title not in joint tenancy, but in "tenancy by the entirety" instead. It's very similar to joint tenancy, but can be used only by married couples (or in a few states, by same-sex partners who have registered with the state). Both avoid probate in exactly the same way.

  • Community property with right of survivorship. If you are married (or in California, if you have registered with the state as domestic partners) and live or own property in Alaska, Arizona, California, Idaho, Nevada, Texas or Wisconsin, another way to co-own property with your spouse is available to you: community property with the right of survivorship. If you hold property in this way, when one spouse dies, the other automatically owns the asset.

4. Gifts

Giving away property while you're alive helps you avoid probate for a very simple reason: If you don't own it when you die, it doesn't have to go through probate. That lowers probate costs because, as a general rule, the higher the monetary value of the assets that go through probate, the higher the expense. And most gifts aren't subject to the federal gift tax.

5. Simplified Procedures for Small Estates

Almost every state now offers shortcuts through probate—or a way around it completely—for "small estates." Each state defines that term differently.


PROBATE GUIDELINES FOR FLORIDA

Having a last will and testament in Florida does not ensure that your assets avoid probate upon your death. A last will and testament distributes your probate assets to the correct beneficiaries. Assets that are in the decedent's own, individual name are assets that go through probate in Florida. Your last will and testament tells where your probate assets are distributed upon your death.

Florida has 3 types of probate:

  • Formal Probate Administration

    • When assets exceed $75,000 in value and/or debts exist

    • Attorney definitely needed here

  • Summary Probate Administration

    • Assets less than $75,000 and there are no debts

    • Attorney advised but not completely necessary

  • Disposition without Administration

    • For very small estates in order to pay back someone who paid for a funeral bill.

In creating your estate plan, you need to know where your probate and non-probate assets are distributed upon your death. Non-probate assets include jointly held property (land, bank accounts) or assets with beneficiary designations with payable on death designations (life insurance, annuities IRAs). These assets are not distributed according to your last will and testament but are instead distributed according to the beneficiaries thereon. This means that the last will and testament does not control these assets, which can lead to unintentional consequences with unplanned estates.


PROBATE COSTS

Florida law provides a table of compensation based on the size of the estate. The fee schedule isn’t mandatory, but is a safe way for law firms and personal representatives to set fees because the statute creates a presumption that these fees are reasonable. The statutory compensation is:

  • $1,500 for an estate valued at $40,000 or less

  • $2,250 for an estate valued at more than $40,000 but not more than $70,000

  • $2,000 for an estate valued at more than $70,000 but not more than $100,000

At values of $100,000 or more, the model switches from a flat rate to a combination of flat-rate and percentage-based billing, which becomes increasingly complicated as the value of the estate increases. The flat $3,000 for the first $100,000 still applies. Then, the statute provides for percentage-based compensation as follows:

  • 3% of any value between $100,000 and $1 million

  • 2.5% of any value between $1 million and $3 million

  • 2% of any value between $3 million and $5 million

  • 1.5% of any value between $5 million and $10 million

  • 1% of any value above $10 million

As you can see probate fees can quickly eat up the assets in an estate so it may be very beneficial to have your estate plan locked up to avoid probate.




YOUR PETS & WILLS VS TRUSTS

· Although we all think of our pets as family members, legally, pets are considered property, just like your vehicle or household goods.

· Because pets are property, they can be “distributed” to your designated caregiver(s) through your will and you can also leave funds for their care in the will.

· You cannot, however, distribute funds over time or set other stipulations for their care, such as an annual veterinary certificate of care.

· If you want to establish funds to be paid out over time such as annual payments and require a trustee to verify veterinary care, a living trust is the way to go.

· Additionally, a living trust takes effect immediately upon putting it into effect, so if you go into a nursing care facility, the living trust will go into effect even though you have not passed.

· A will does not cover any event except death. Without some type of gap plan in place, your pet could end up in a shelter while you are in transition going to nursing care or while your estate is in probate.

20 views0 comments

Recent Posts

See All

Comments


bottom of page