Just the FAQs, Ma'am (Vol. 1)

As part of getting back to basics for people searching to basic estate planning answers, I’m going to cover some basic questions that come from Henry W. Abts III’s book The Living Trust in its Appendix G. While the questions are coming from the book, the answers are coming from my own knowledge and experience. This will likely be in several parts, and we’ll also be using this content in videos, shorts, and podcasts. Without further ado…

Welcome to a whole bunch of questions about estate planning! Today we have some bite sized nuggets of what is really going on with some of the most common estate planning questions.

Happens if I die without a Will? The fact is you've got a will whether you know it or not, because the State has a plan for what happens if you pass on and you don't have your own written Will. State law fills in the instructions, who will be the executor or administrator, and who receives your estate. All of those choices are made for you in the law. If you don't want to put your own plans in place, state law has you covered. The problem is it's not really customized for your situation, and it doesn’t reflect your wishes. State law just assumes that your closest living relatives are the ones you want administering your estate, receiving your estate, and that everyone gets their inheritance at age 18.

Generally, a spouse is first in line to administer your estate, but they don’t automatically receive everything if there are children or parents still living. They still have to go through the probate process and get approved by the court, and handle all of the other paperwork, but the spouse definitely has first priority to administer the probate estate. But what happens if you don’t have a spouse, or they have passed on before you, but you do have three kids. They're all in line to be co-administrators, and that’s just a mess waiting to happen. While a lot of times my clients would want their three children to be equal beneficiaries, they rarely want all three to be co-administrators, and we highly recommend against having more than one person in charge of an estate at a time. It’s always best to put your own plans in place through at least a properly executed Will, if not a Revocable Living Trust to also avoid probate.

How are distributions handled with a Will versus a Revocable Living Trust? With a Will, the distributions have to go through the probate court process. In fact, if you have a Will or die without any plan, the probate court has to administer and oversee the estate, and then assets get distributed based on the court’s review of the accounting by the personal representative, making sure everything adds up and all receipts and cancelled checks are in order, and then that the estate was released to the beneficiaries. And it all has to be signed off in very formalized fashion, which again means there's a lot of added potential cost there because it's in probate.

If the distributions are made through a revocable living trust, as the Trustee you do have to keep records, but it doesn't have to be with the nearly the same formality a court demands. And your trustee can just go ahead and distribute the assets once all of the debts and taxes are paid.

Why didn't my attorney tell me about a Living Trust? While I'm seeing more attorneys these days at least reference a revocable living trust, they are not always advocating for them. The general process for many attorneys is if potential clients call up and ask for an appointment to get their Will done, then the law firm sets up an appointment to get their Will done. They don’t cover that a Will means the estate is going to end up in probate, which means the lawyer is likely to handle the lucrative probate later. Work which ends up being a lot more expensive than if the estate is being administered through a Revocable Living Trust.

So why aren't attorneys talking that much about revocable living trusts? There are two potential reasons. First, they don't really know and understand revocable living trusts because it's not what they do every day like. I am a planning attorney who does estate planning, and I'm also a Certified Medicaid Planner™, so discussing the avoidance is probate is something that I do in and out, all day long. If another attorney is primarily doing divorces, and they say to themselves that they can make a little money handling estate planning, they may be truly unaware of how valuable revocable living trusts can be in saving money for the family in the long run.

Second, there are the estate attorneys that handle probate as their main field of law, and that's where they make the vast majority of their money. Well, why tell somebody “here's how you can avoid having your estate pay me a lot of money in the future?” It’s not in their economic self-interest to tell their clients about avoiding probate. They won’t lie if asked about revocable living trusts, but they also aren’t providing an education on probate avoidance if they are not asked. I got into estate planning because I wanted to have my clients avoid things like my grandmother had to go through when my grandfather died, which was a year and a half of probate for my grandfather's estate. It took a year and a half, it was expensive, and she just didn't want anything to do with probate and had an attorney handle it for her. Problem is she didn’t see the alternative of avoiding probate with a revocable living trust until after he had passed on, so she was stuck. She told me she was always told to just do a Will and her estate was planned.

So do I do Wills in my practice? Well, of course I do. If somebody really wants that type of plan, we’ll provide it. However, they're always going to get informed about revocable living trusts, avoiding probate, and the different options through my book Estate Planning Basics as part of the pre-appointment process. I've been told the book is more of a “booklet” since it’s only 70 pages. It's not very heavy reading, but it gets to the points of the difference between a Will and a Trust, what probate is and the drawbacks, and how a revocable living trust avoids the probate court process. If after reading the book they decide that probate does not seem like a big deal in their case, then we’ll do a Will-based plan for them. But at least they've made an informed decision.

There will be more coming in next week’s blog, but if you want to get the full version with more questions, then check out the YouTube video here.