Planning for your future and what will happen to your estate upon passing is a topic that every person should discuss. Everyone’s goal should be to minimize delay and expense when dealing with not only their financial accounts, but their entire estate plan. If your estate plan is done correctly, there should be minimal- to-no cost upon your passing and the transfer immediate. My opinion is that probate should be avoided whenever possible, due to the cost and delay in processing an estate through the court process of probate. At PK Boston we strongly advise our clients to follow this advice.
If you ignore these issues, upon passing, your assets will essentially be frozen, awaiting appointment of a personal representative (aka an “executor” or “executrix”). Before being able to have a personal representative appointed, someone must locate the original Will and file it with the appropriate probate court, together with a death certificate, and all of the correct probate court forms. In doing so, an attorney first must determine the correct filing needed (there are different probate processes) and then make sure the correct documents are filed. The courts are typically backlogged, so any misstep whatsoever will exponentially delay the process. And, until this court probate process is complete, the accounts cannot be accessed. Obviously, this is a lengthy process that is usually expensive, time consuming, and frustrating, so probate should be avoided.
How can you avoid probate?
The most efficient and foolproof way to avoid the complications and expenses of probate is to create a trust. When preparing a trust, you are more or less creating an entity that outlives you, with explicit instructions determined ahead of time, like determining how your estate should be managed and who should manage it. A trust also adds flexibility, in that it allows you to maintain 100% control while you are living–control is not transferred until your death or disability. A significant advantage to the trust is that any assets transferred are not transferred to any other beneficiaries until your death. As far as I’m concerned, this is of utmost importance. For example, if you simply add your child’s to your financial accounts, you are giving that account away. So, in this example, if your child encounters financial difficulty, like a tax lien, bankruptcy, a divorce, or if your child simply wants access to any funds, those accounts are disposable to them!
What kind of trust is best for me?
There are many different types of trusts. VERY quickly… there are Living Trusts (formed/funded during your lifetime) and Testamentary (those funded after death). Of these, some are Revocable and some Irrevocable. Each one has its own treatment as to taxation, tax basis, long-term care, etc. At a minimum, everyone must remain cognizant of the estate taxation rules in their state, as well as Federal laws (because these regularly change). A very simple Living Revocable Trust does not cost much to prepare, yet it can accomplish all of the issues discussed above and is typically far less costly than the probate process (not even considering the costs associated with lengthy delays, which can result in deterioration of assets, lost buyers, etc.). With this in mind, I strongly believe everyone should know when it is necessary to include an Irrevocable Trust is their estate plan in order to minimize estate taxes. Trusts can also help preserve assets if and when long term care is needed. If these factors are not considered, essentially all of your assets can be attached by the state to repay the state for costs associated with your care. Again, all of this can be avoided by scheduling a consultation at PK Boston Law to determine what is best for you and your estate.