QUESTIONS, QUESTIONS, QUESTIONS
Do Wills Really Have To Go Through Probate? Is A Trust The Only Way To Avoid Probate? and Is A Trust Quicker, Easier, and Cheaper to Settle?
Not too long ago I received an advertisement in the mail that included an “AARP Report” on probate, wills, and trusts. The ad was for a company that produces living trusts and repeated the same half-truths and misinformation that we frequently see in advertisements from what I call “trust mills” – companies that use fear to goad people into paying too much for boilerplate trusts that often don’t work. The statements in the report tell only part of the story. I will tell the rest of the story, based on 16 years of drafting and litigating trusts.
I am looking at each assertion in the alleged AARP Report and fill in some of what is not reported – I am quoting the text, but leaving out the capital lettering, bolding, and underlining they insert throughout:
Assertion: “Under Article 1 14-3101 of the Arizona Probate Code, no will is effective to pass title to property until probated.”
Fact: While this is basically true, it certainly does not apply to small estates – passing title to real estate with $100,000 or less equity or personal property of $75,000 or less. These amounts can be transferred by affidavit after waiting periods of 30 days for personal property or six months for real estate. And as I pointed out above, it is very easy to pass title in property, of any amount, without probating a will or administering a trust by using various forms of beneficiary designations. In fact, I see many, many estates in which property is passed, outside of probate, through a variety of methods – joint ownership with rights of survivorship, beneficiary designations, P.O.D. (Pay on Death) designations, T.O.D (Transfer on Death) designations, small estate affidavits, and many institutions will allow an account to be opened I.T.F. (In Trust For). This last method is a designation on the account, making it a trust to pass outside probate to a beneficiary without any additional paperwork.
Assertion: “The alternative to wills and the probate process is called a living trust.”
Fact: A living trust is one of many alternatives to probate. But even if you have a living trust, you must still have a will that maybe or maybe not would have to be probated. It would probably be legal malpractice for an attorney to prepare a living trust without an accompanying will. It is true that we hope the will is not going to be necessary, but it is still an essential part of a trust-based plan. And even if all property passes through a beneficiary designation, a will is still an important document to have.
Again, it is important to note there are many ways to avoid probate – all of which are less costly, quicker, and simpler than using a trust. But, yes, there are often other reasons to have a trust.
Assertion: “A living trust takes less time to settle, is less expensive, and allows you to maintain control of your assets at all times – even if you should become mentally ill or physically incapacitated. – and keeps your private financial affairs from public view.”
Fact: As an attorney who has worked with thousands of wills and trusts over the past 16 years, this has not been my experience. Yes, it is the ideal experience that we strive for. But there are many variables – the assets involved, how the assets are titled, who creditors of the estate are, who the successor trustee is, and who the beneficiaries are, to name a few. For example, a major problem with trusts is that a family member is often the successor trustee. There is virtually no oversight over the trust, and the trustee can do just about anything. At least a probate is subject to court oversight. With a trust, if a successor trustee does something dishonest or improper and a beneficiary finds out, the only recourse is for the beneficiary to sue in court. That is expensive. Often the trustee doesn’t care about their cost for a lawsuit because they are using the trust money to pay for their defense. And once it goes to court, it is just as accessible as a will – it has the same level of privacy or less. I have seen trusts tied up in litigation for years at the cost of tens or even hundreds of thousands of dollars. I have seen families fractured because of ugly trust disputes. And I have seen estates emptied into the pockets of, you guessed it – the lawyers.
Also, trusts, by their nature, require work to set up and maintain. Assets must be affirmatively titled in the name of the trust – bank accounts, investments, real estate. Additional processes are involved in putting businesses into the trust. And some assets need to get into the trust by beneficiary designation. It is not enough to list the property on a schedule and say it is in the trust – that DOES NOT work.
Once the Trustmakers of a Revocable Living Trust die, the trust becomes irrevocable, and taxes must be filed, and the law requires notifications to be sent to beneficiaries. Beneficiaries can demand additional information. And breaching the fiduciary duties of the successor trustee is not that difficult. There are sometimes lawsuits by creditors or beneficiaries.
As one of my mentors told me: trust is not a magic document. It takes effort to make it happen and to take advantage of its many benefits.
Lesson
I tell people all the time that if you are doing a trust just to avoid probate, the trust is not necessary. You can easily avoid probate without a trust. And trust administration can be as expensive as a probate if done correctly. And if not done correctly, there could be trouble for the trustee and the beneficiaries. The decision to do a trust or a will must take into consideration many factors – your assets, your family, your wishes for the ultimate distribution of your estate. It is best to meet with an experienced estate planning attorney who can help you through the analysis. And an experienced estate planning attorney can help you create a plan that is likely to work the way you want it to. It is definitely worth the effort and expense upfront to prevent potential problems after your death. With many trust mills, you don’t meet with an attorney – presentations are usually made by salespeople. Often, they are done as efforts to sell other financial products. The plans may not be individualized for your situation. Or it may be totally unnecessary.
Every year in Arizona, these companies start up around the time snowbirds are expected back. They sound like good deals. They usually are not. In Arizona, we have many experienced estate planning attorneys who can work you through the process to determine if you need a trust and to help with a trust that will do what you want, when you want or need it to. We have almost 50 attorneys who are board-certified in Trusts and Estates. We have many more who have strong experience and knowledge in the area. Of course, Ronald Zack Law, PLC would be honored to have you consider our firm. But we will also be happy to talk with you and help you find someone else who might be better suited for your situation or in a more convenient location for you. We offer affordable consultations for that purpose. Please call for an appointment.
