The Truth About Trusts

This must be the season.  Maybe it’s because snowbirds return to Arizona.  It seems many companies are advertising in newspapers or sending out mailers warning of the perils of probate.  They warn that your survivors are likely to be required to pay huge fees, and that your assets will be eaten up by the cost and expense of probate.  In order to avoid probate, you must have a trust, according to the advertisers.  So, you are invited to a “seminar” where you may be fed both food and information (and maybe misinformation), and you will be pressured into having a trust done by their company.  Sometimes an attorney is involved, but you may never see that attorney.  They claim the trust is written or reviewed by an attorney you may never see or meet.  Often, however, there is no attorney.  The trust may be a form used by an insurance agent, a document preparer, or a financial adviser.  These are people with access to forms, but are unable, in fact prohibited, from giving legal advice.  So, you’re stuck with a form document that may or may not work the way you want it to.  These companies are sometimes called trust mills because they turn out large numbers of trusts for people who may or may not need them.

There are two questions I have to ask.  First, is probate so bad that you have to take measures to avoid it?  And second, is doing a trust the best way to avoid probate?  Both answers are no and here’s why.

Should probate be avoided?

Probate is a method of administering a dead person’s estate with some degree of court supervision.  Some people feel this is an invitation to unnecessary expense and complexity.  The three biggest complaints I have heard about probate is that it costs too much, takes too long, and allows your personal information to be seen by the public.  I will address each complaint.

  1. Costs too much

This may be the case in some states.  In Arizona, however, probate is a relatively inexpensive procedure.  Most estates that go through probate, go through an informal probate process.  There are no court hearings, you never see a judge, and all that is required is the filing of papers with the court and providing notice to interested parties.  The costs include a couple hundred dollars for filing, a smaller amount for publication, and attorney fees, if necessary.

Yes, attorneys can be expensive.  But here is something you are not told in the seminars.  In many, if not most cases, you will need an attorney to administer a trust, too!  A trust is not a magic document that works by itself.  Things do not happen automatically just because you have drafted a trust.  There are still rules to follow, expenses and costs involved, just like in probate.  Fifty one pages of the Arizona Probate Code address administration of probate estates.  The portion of the probate code dealing with trusts and their administration is 46 pages.  To administer a trust correctly can take as much work as a probate; sometimes more.

So, probate in Arizona is not that expensive and a trust does not necessarily avoid the expense.

2. Takes too long

Probate in Arizona is not a lengthy process.  An uncontested probate can be done in six months.  The longest wait is the four month creditor waiting period.  In probate, we publish in a newspaper to give notice to unknown creditors.  If none come forward within four months, they are forever barred from making a claim.  Actually, this is a good thing.  Otherwise, creditors may have two years and maybe more time to make a claim.  If you have a trust, though, you can still publish to limit the creditor period to four months.  This is a good practice because otherwise, you may want to wait much longer to distribute out of a trust in order to avoid a situation of having to pay back a distribution to a creditor.

So, the length of time for probate in Arizona is not that long, and administering a trust will probably not be shorter (if it’s done right).

3. Privacy

When a probate is filed in court, the will and some of the papers become accessible to the public.  But in Arizona, anything sensitive like social security numbers, addresses, inventory and any account information is kept private.  If these are filed in court, they are usually sealed.

Trusts are more easily kept private, but that is not always a good thing.  Trusts often depend on the beneficiaries to monitor compliance with the terms.  With probate, the court provides that oversight.  If the trustee is less than honest, beneficiaries may never know about the trust or its terms.

Probate, then, is not such a bad thing.  And there are many cases where probate might make a lot of sense because the process requires that beneficiaries and heirs be kept in the loop.  Some of those same requirements exist for a trust, but because there is no court case for a trust, those requirements are very difficult to enforce without going to court. And as pointed out above, the trust may stay under the radar of those who should know about it!

Still, many people want to avoid probate.  But is a trust the best way to do that?  This is the second question and my answer is no.  While there are many, many very good reasons to do a trust, if you are only looking to avoid probate, there are many other ways to achieve that objective.  You can do so by getting some good legal counsel about transferring property outside of probate through beneficiary designations, joint ownership, transfer on death and pay on death designations.  Using any of these will avoid probate.

This is why you need legal advice to determine what works best for you.  An attorney with specific training and experience in estate planning can help evaluate your situation.  Do you need a trust?  Should you use another method to avoid probate?  Or should you be trying to avoid probate at all?  There may, in fact, be good reasons to go through a probate.

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