This is the second piece of a four-part series on why you need a living trust. As mentioned in my previous blog, I recently read an article from a well-known business publication that provided four reasons why you don’t need a living trust. The second reason provided by the publication is:
~ Probate doesn’t have to be a nightmare ~
The article points out that many states have streamlined processes for small estates. In addition, the article states that probate can be beneficial because the process is monitored by the court, which helps ensure that the executor is following the provisions of the will.
Although probate can be streamlined, that is only true for a minority of cases. Many states don’t offer a streamlined process, and others consider a “small estate” to be a total estate value of $5,000 to $10,000. The truth is - probate is most often a nightmare.
Here are a few disadvantages to probate that the article fails to mention:
- Probate is expensive. Probate can cost up to 4% to 5% of the gross estate. For example, if you have a house worth $400,000, with $200,000 left on the mortgage, the attorney will base the fee on the $400,000, and not consider there is only $200,000 worth of equity in the home.
- Probate is public record. This means anyone can view your probate file and have access to your personal information.
- If you live in a state that has a streamlined process (say with a $100,000 probate threshold), but you own a $75,000 asset in a non-streamlined state that has a $50,000 probate threshold, you will be required to open a probate in the non-streamlined state.
- If your designated beneficiary is a minor, or is declared mentally incapacitated at the time of distribution, a conservatorship will be required to determine who will manage the beneficiary’s inheritance until the beneficiary is no longer a minor or regains capacity. Upon the minor turning an adult, which in many states is 18 years old, the conservator will have to release the money to the child. Having an 18 year old manage even a small amount of wealth could be problematic.
- The probate process is monitored by the probate court, but it is also influenced by the court’s schedule; meaning, if the court’s calendar is heavily booked, then you may be waiting a long time for the probate to close. Many probates can take up to 18 to 24 months to complete.
- More often than not, in a probate proceeding, it means that your loved ones will receive their inheritance as an outright distribution. This means their inheritance will not have any protection from future divorces, creditors, bankruptcies, or taxes. Most of us have worked too hard, sacrificed too much, worked endless hours to see our legacy destroyed or wiped out by leaving everything we have to those we love without any protections. With a living trust, not only can you avoid probate, but you can also ensure that your loved one’s inheritance will be protected after you are gone.
The above examples are just a few of the disadvantages of a probate. A properly drafted revocable living trust can prevent all of the above-listed disadvantages. Before deciding on whether to create a will or a living trust, contact a qualified estate planning attorney who can help assess what estate planning method is right for you.
Contributed by Morris Hall, PLLC Phoenix Estate Planning Attorney, Darren L. Richardson.
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This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.