Clients sometimes come to me hoping to set up their estate in a way that will avoid probate after their death. Occasionally, especially if they have limited assets, this can easily be done, such as by created a lady bird deed for a home that adds another person to the deed. Often, though, especially with more complex assets, this would typically involve creating a revocable living trust. While there are some people who can benefit from doing this, usually people’s fears of probate are way overblown.
Here are the major concerns I typically hear and why you shouldn’t worry about them:
- Taxes. While there is a federal estate tax on the books, it applies only to estates worth more than $5 million. If your assets don’t total that amount, your heirs will not pay taxes on what they inherit from you.
- Privacy. It is true that wills deposited with the court are public property while trusts don’t need to be filed. In theory, then, anyone can see who you have left your estate to. In reality, though, unless you are a famous person it’s unlikely anyone is going to bother trudging to the courthouse to peek at your file.
- Fees. There are costs involved with a probate–court costs, attorney fees, and the like. But setting up a revocable living trust also has fees attached to it, and they are much more than the cost of drafting a will.
Here are the biggest downsides to trying to avoid probate with a revocable living trust:
- Documentation. The original trust is not filed with the court, and so can easily be lost over the years. Without that document, proving a person is the successor trustee (and entitled to the deceased person’s assets) is impossible. I have had several clients over the years who swear they are the successor trustee, but since the original trust had been drafted decades earlier and no one could find it they were never able to locate it.
- Trust not properly “funded.” After creating the trust, and after each asset purchase thereafter, the trustee’s home, cars, bank accounts, stocks and other assets must be placed into the trust. So many times a trustee passes away and one or more assets is discovered to have remained in their own name. That asset can only be disposed of by–you guessed it–starting a probate.
This is not to say no one should create a revocable living trust. But in my experience most people should instead create a valid will (with an attorney, so there are no mistakes that can’t be corrected after you pass on) and not worry about their heirs needing to go through the process of probate.