If you know more about planning you can make better decisions, avoid problems and achieve better results for yourself and your loved ones. The Greensboro College Foundation strives to educate the public about effective estate planning options. This note is one in a series dedicated to providing understandable information about estate planning problems and solutions.
Goals
In discussions about estate planning three general ideas always surface in the conversation:
1. "I want to control my assets and my affairs while I am alive."
2. "I want to control my assets and my affairs and provide for my loved ones after I die."
3. "I want to keep the expenses and costs to a minimum."
Beyond these general goals individuals and couples have many personal goals; like the special needs of a loved one or the desire to provide special care and supervision for a young or immature beneficiary or the desire to favor specific charities with gifts to support the efforts of worthwhile organizations.
This discussion will compare traditional Will planning and Living Trust planning in the context of these general goals. When you visit privately with a professional knowledgeable in the various dimensions of estate planning you can discuss your personal goals in detail and learn how you might achieve them.
Will Planning
Traditional estate planning has relied on the Last Will and Testament. Lawyers often told their clients that all the clients needed were Wills. You may have heard such advice yourself.
That advice overlooks two important features of a Will. First, the Will operates only after death. It offers no protection during lifetime. Second, the Will operates only in Probate Court and nowhere else. Probate Court has some very undesirable qualities that are costly and troublesome.
Let us look at an estate plan based on a Will and see how close it comes to meeting the three general goals mentioned in the first section. To review, recall that a Will operates only after death and that it operates only in Probate Court.
Probate Court
Probate Court is a system for changing title to property left behind by people who have died and for managing the property of living persons who are mentally or legally incompetent. Both these purposes of Probate Court are good ideas as matters of public policy. In a society of law and order we expect a certain standard of government protection in such matters of public policy. However, the protection of the Probate Court come with a very high price tag in dollars and in human suffering, and generally does not seem like protection at all.
Public policy may not be your chosen standard to govern how your affairs are managed or how your loved ones are treated. Our experience teaches us that most people would prefer to have their own desires and values direct their affairs, not those that flow from public policy.
Cost
Lawyers file Wills in Probate Court and they collect fees for doing so. In addition to the Will many other documents must be filed in connection with the administration of an estate. When you hear remarks about the cost of Probate, those cost estimates reflect, in large part, lawyer fees charged for the lawyer's work in drafting and filing all those papers and in following the procedures required by the law and by the Probate Court.
The American Association of Retired Persons estimates that Probate costs average about 8.4 percent of the value of the probate estate. The Wall Street Journal (February 1987) estimates Probate costs between 7 and 10 percent.. Utah is said to have the lowest average in the country at about 3 percent. Alaska is said to have the highest average at 11 percent.
Whatever the cost, Probate can be completely eliminated from your affairs by using a Living Trust.
Delay
Probate procedures take a long time. Estimates vary, but Probate can easily take between nine months and two years. Anyone with experience in Probate Court through a family estate will understand the time required by the process. There are many steps including applying to have someone appointed to represent the estate, filing the Will, inventorying the assets, seeking Court permission for certain transactions, completing payments and distributions under Court rules and reporting to the Court in a final accounting.
Even a simple estate can take a long time. If matters such as the validity of the Will, the completeness of an inventory, the accuracy of an appraisal or the calculation of taxes or distributions are disputed an estate can take years to settle. A trust, however, avoids the long delays seen in Probate Court.
With a trust, if you become incompetent during your lifetime, the person you named as successor trustee is immediately in charge of your affairs fully authorized to manage your affairs as you have instructed in your trust. No Courts, delays or lawyers are required.
With a trust, when you die, the person you named as successor trustee (it might be your spouse, your children or anyone else you selected and named in your trust) is immediately in charge of your affairs, with full authority to manage as you have instructed.
Publicity
Probate Court creates a public record of all matters that come before it.
The first documents filed is a list of your heirs, next of kin and beneficiaries. The next document filed is your Will. The third document filed is an inventory of all of your property that will be passing through the Probate procedure. As part of the public record, this otherwise private information is available to anyone who requests it.
The inventory, in combination with your Will, and the list of heirs make public what you own and who will inherit it. Your in-laws, your neighbors, salespeople, reporters or anyone else can look through those public records and use the information as they like. It is their constitutional right to obtain the information recorded in the public record of the Probate Court.
A Living Trust does not create a public record. Instead, it keeps all your affairs private.
Loss of Control
Probate rules and procedures dictate what happens and when it happens, in matters pending before the Court. The Court applies its rules and values, and the statutes and rules of the government, not your values and beliefs. The laws, rules and procedures of the Probate Court dictate which claims and creditors are paid in what order. The funeral bill, Court costs, lawyer fees, taxes, medical bills, secured creditors, unsecured creditors, all get paid in a specified order of priority. Your heirs are always last on the list. If you have no heirs, the state puts itself in your plan by providing that, if you have no heirs, your assets pass to the state. The legal term for this result is "escheat." These laws and rules put the Probate Court in control of your affairs and may dictate a result you never anticipated or intended.
By contrast, a Living Trust keeps you in control. A Living Trust contains your instructions and your delegation of authority to whomever you appoint to take over when you cannot manage your affairs, either because you are too ill or because you have died.
A Will and a trust both make provisions for distribution of your property after you die, but the similarity ends there. A Will provides no protection during your lifetime, puts the Probate Court in charge of your affairs after you pass away and tends to maximizes fees and costs.
A Living Trust plan contains your instructions for your loved ones, coupled with your delegation of authority to persons you select to carry out your instructions. A Living Trust plan is designed to minimize expenses and, if appropriate, to reduce taxes.
A Will does not achieve any of those goals. It does not keep you in control during your lifetime (in case of disability), it does not keep you in control after you die (because it places the Probate Court in control of your affairs) and it does not minimize expenses. In fact, it might be said that a Will-based estate plan does just the opposite of all three stated goals.
Consider a Living Trust
Let us look at a Living Trust as an alternative to the Will, and let us consider it in light of the three stated goals.
What Is It?
A Living Trust is a backup system designed to operate only when you cannot operate for yourself: during disability and after death.
You might compare a Living Trust to a container, much like a wicker basket. When you make a basket, you weave in the number of strands of wicker and straw that will make the size and shape basket you want. When you make your Living Trust, you weave in your values; your beliefs; your goals; your dreams; your love for your family, your children, your grandchildren, your favorite charities, your church and whatever else you hold dear. You weave a trust that represents you, that represents your plans and values, not the plans and values of the Court, the legislature or the lawyers.
A Life of its Own
A Living Trust is a separate legal being. You may get sick, but your trust does not get sick. You may die, but your trust does not die. Your trust continues, with or without you, to manage your affairs, as you have instructed. Your trust has a life of its own.
Instructions
A Living Trust contains your instructions for what you want done during your lifetime if someone else needs to take over and manage for you. It also contains your instructions for what you want done after you die.
While you are healthy and alive you give up nothing; you remain in control. The instructions you place in your Living Trust answer some very important questions: How do you want your spouse protected and cared for? How do you want your children protected and cared for? How do you want a special child or grandchild protected and cared for? Do you want to give your children, your loved ones, your beneficiaries, maximum options, maximum protection and maximum control over their own fate?
You write the answers to these questions into your Living Trust through your instructions.
Authority
A Living Trust contains your delegation of authority to whomever you have selected to manage your affairs when you can't (because of incompetence or death). Typically, you select yourself first, and name someone else to follow at the appropriate time.
A properly written Living Trust reserves to you, the Trustmaker, unrestricted authority to manage your affairs as you see fit. Your successor trustee has the authority and the duty to follow the instructions you placed in your trust.
Revocable Living Trust
The Living Trust that we discuss in this article is a Revocable Living Trust. Each word in that title has special meaning.
"Revocable" means you can change any part of your trust plan any time you want.
We speak of a "Living" trust because it is created during your lifetime, and because it operates during your lifetime, as opposed to a Will that operates only after you die.
We use the term "Trust" because a trust is a very special thing. It is a sacred contract. Trust law is very old and is found in many ancient records, including those of English law more than a thousand years ago. A trust is a separate legal being, and it is accorded the highest protection afforded any legal relationship by our legal system.
Three Hats
A trust offers three jobs. You can hold each of these jobs if you choose because your instructions dictate what happens in your trust.
Trustmaker
The Trustmaker is you. Our office can draw up the documents, based on your decisions and plans, but only you can sign the documents and thereby give the trust its life. Some offices use the terms "Settlor", Grantor" or "Donor." All these terms identify the same person: the person who creates the trust.
Trustee
The trustee is the person in charge of managing the affairs of the trust. Most of our clients appoint themselves as trustees of their trusts. That serves to keep them in charge of their affairs during their lifetimes.
You name someone you trust to take over and follow your instructions after you can no longer manage your affairs. Your instructions dictate what these successor trustees must do.
Beneficiary
Beneficiaries are the people who have the right to receive benefits from the trust. You make yourself beneficiary as long as you live and you name the beneficiaries who will follow you. You identify the beneficiaries and you determine their rights, that is, what they will get and when they will get it. It might be yourself as long as you live, then your spouse, then your children, your friends, your charities, or anyone else you want to benefit.
The plan that you set out in your trust unfolds during your lifetime and after your death without intervention of the Probate Court. The high cost of Probate, the delays, the publicity, the loss of control, will never visit your loved ones because your trust, containing your loving instructions and your delegation of authority to persons you trust and appoint will manage your affairs.
A Living Trust perfectly meets the three goals our clients have described to us:
1. A trust keeps you in charge during your lifetime.
2. A trust keeps you in control after you die.
3. A trust minimizes expenses during life and after death.
The Living Trust is truly good news for families who want to stay in control of their affairs during lifetime and avoid the high costs and other problems associated with passing their hard-earned life savings to their children and other beneficiaries while reserving the right to change the plan if and when they want to do so.
What Shall I Do Now?
Ralph Waldo Emerson once said, "A journey of a thousand miles begins with a single step." How true. In planning the first step is an informational, exploratory visit with a professional knowledgeable in the various dimensions of estate planning. It is such a small step, but it can begin a journey that will bring such great benefits and protections to you, your loved ones and the charities that are important to you.
To learn more take the first step and call the Office of Planned Giving at (336) 272-7102, extension 223 to schedule a no cost, no obligation, confidential visit to discuss your personal and charitable planning goals and the ways you might achieve them. You and your loved ones will be glad you did.
This discussion of basic estate planning concepts is not legal, tax or financial advice and is provided for educational purposes only. Legal, tax or financial questions should be directed to your professional advisors for discussion in context with your personal situation.
Office of Planned Giving
Greensboro College
815 West Market Street
Greensboro, North Carolina 27401-1875
336-272-7102, extension 223
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