I want to talk to you about Trusts and what Trusts are about and why they have become so popular these days. To tell you a little bit about Trusts, I’m going to tell you a little bit about the probate process because many Trusts are designed to avoid that process.
At my office, I plan estates and also settle estates. At the beginning of the week, at some point, someone will come into the office and they will want help probating a loved one’s Will. Whenever they come into the office, I always get two questions when it comes to the probate process, and you might be able to guess what those are. First is, “How long is this going to take?” and the second is, “How much is this going to cost?” Those are the two questions I always get.
Every probate is different, but every probate takes anywhere from several months to several years to complete. There are often multiple court filings, and every time that document gets filed, it has to get stamped. It typically will go up to the law clerk, and if everything looks good, the law clerk will give it to the judge. The judge will sign it. It will go back through the processing department before it’s finally available for the family that’s involved.
And, those things simply just take time. I often hear from people complain about things like attorney delays and delays from the courthouse and the processing of the paperwork, delays from financial institutions and other title companies that may be involved, delays that people involved in the process aren’t being proactive. If there’s one party that’s not in complete agreement with how the process is going, they can file what we call in Georgia a “caveat,” that basically will shut down until court hearings can be had and the judge will have the hearing and then make a decision and push the probate forward. So, really, those things take anywhere from months to years to complete. Most of the people I talk to say that, “This just simply takes too long.”
The question regarding cost is also a difficult one. Every probate is different. You’ve got different heirs. You’ve got different issues, different underlying assets, just different complexities. Over the years, I’ve seen many ranges of probate costs. Once you factor in things like court costs, maybe attorneys’ fees, maybe the executor will be compensated, other miscellaneous costs anywhere from $3,500 to $15,000 or more. In some cases, I’ve had some that have gone longer than that.
And, if you have a married couple, you might have to go through that process twice, when the first spouse dies and then when the second spouse dies. If you happen to own property in another state, you might have to go through it three times. We call those “ancillary probates.” Oftentimes, when people come into the office, I can tell you this, when they have to get through the probate process, they never leave happy, unfortunately. It’s just something that nobody wants to go through. And, so, that’s why Trusts have become so popular these days, because Trusts, while a Will will help you go through the probate process, it will help you navigate the probate process, Trusts are often designed to avoid the process.
So, let me tell you a little bit about what Trusts are. Years ago, they were kind of perceived as something that only the wealthy would have. These days, a lot of people are just using Trusts to enable themselves to keep control over what they have while really avoiding many government intrusions like the probate process. Let me tell you about, and I always use this example when I’m describing to people what Trusts are. I changed their name because we’re in a, although Atlanta is one of the major cities in the United States, it is a small community, so I always change their name in case anybody happens to know who these people are because I talk about their family, and I just change their names to “John” and “Jane.”
Many years ago, I started representing John and Jane, and when they came into the office, I asked them the same thing that I ask everybody that comes into the office, which is, “What has prompted you to want to get your affairs in order?” Whenever I ask that question, I always get a lot of different answers to that question. For some people, they just want to make their estates simple. Others want to avoid the probate process I was just telling you about. Others want to avoid things like nursing home poverty. Some want to avoid taxes. Some want to make their children’s inheritance divorce proof. Some couples are concerned because they are in a second marriage situation. There’s really an endless list of valid concerns that people have when it comes to getting their estate in order.
But, when John and Jane came in and I asked them that question, Jane really emphasized that she wanted to make things simple for her family. And, the reason it was important to Jane is because her mother had died a few years earlier. Her mother had a Will like a lot of people, and the mother had named Jane’s brother as the executor of the Will. Every Will needs an executor, and Jane’s mom had named Jane’s brother as the executor. He selected a buddy of his to be the attorney for the estate. And, Jane said that things were just moving slowly. It was difficult for her to get access to information. And, she really didn’t want things like that to be that difficult for her, her family, or her children. She emphasized she wanted to avoid that probate process.
She further mentioned that they had three children, and what they really wanted was that when one of them passed away, everything would pass on to the surviving spouse, and the surviving spouse would stay in control of all of the family assets and that when both of them passed away, they wanted the assets to be quickly, easily, distributed to their three children equally. But, they specifically mentioned that they wanted their daughter, Linda, to be the one that was in charge of everything. Once both of them passed away, they said that Linda was the one that lived closest to them. She was the one that knew the most about their financial affairs. And, the way they described her was that she was just a mature and responsible adult child.
So, we ended up setting up what we call the “John and Jane Revocable Living Trust.” The primary reason we established this trust for John and Jane was because they both knew that if there were assets titled in their name, even if they had a Last Will and Testament, that those assets would have to go through the probate process. Typically, those assets get frozen, and their heirs have to typically hire a law firm and go through the probate process to unfreeze those assets and release them to the surviving family members. But, what they also knew was that if they set up a Trust and the assets were titled into the name of the Trust when they passed away, that none of their assets would be frozen and that the surviving family members would have continued access to those assets and that the family member or members who were designated as the Trustee would be able to make distribution to the heirs at the appropriate time without having to ever work with lawyers, judges, or the courts.
Let me tell you a little bit about what that Trust looked like, which assets needed to be titled into the name of the Trust to avoid the probate process. We’ll talk about what happened when John passed away a few years after we established the Trust. And, then, I’ll let you know what happened when Jane passed away just a few years after that.
So, as I mentioned, the Trust was named the “John and Jane Irrevocable Living Trust.” The Trust that we customized for them said a lot of things but, mainly, it states that John and Jane would be able to do whatever they wanted to do with their Trust assets as long as they were alive. They could buy, sell, manage, donate. No restrictions were put on John and Jane during their lifetime. They were in complete control of everything.
The Trust also said that when one of them died that the surviving spouse stayed in control of everything. Nothing changed. Neither the children, the children’s spouses, nobody was involved when the first spouse died. Things stayed in place for the surviving spouse. Now, after both spouses passed away, as I mentioned, John and Jane designated in their Trust that Linda would be what we commonly refer to as the “Successor Trustee,” and the three children, when they cleared it with the equal beneficiaries of the Trust — we call them beneficiaries instead of heirs of the Trust — when John and Jane passed away.
So, to make the Trust work effectively, certain assets had to be titled into the name of the Trust. First, all of the real estate owned by John and Jane would be titled into the name of the Trust. These transfers were recorded down at the local court house so that real estate could avoid going through the probate process. Now, John and Jane also had an investment account. Once the Trust was signed, it was simple for them to just title the investment account into the name of John and Jane as Trustees of the John and Jane Trust. That way, when one of them, or when both of them, passed away, that investment account would not be frozen, and the family members would be able to distribute it out.
Other types of probate assets that typically get titled into a Trust include things like certificate of deposits, other real estate interests like mineral rights or gas rights, things of that nature. Individually held stocks, things of that nature.
John and Jane had things that didn’t have to be titled into the name of the Trust. We call these “Non-Probate Assets.” For example, John had an IRA, and he named Jane as the primary beneficiary of the IRA. After John died, Jane just simply produced his death certificate to the financial institution where the IRA was being held and the financial institution immediately transferred John’s IRA into Jane’s IRA. So, no probate, no lawyers, no courts were required for this transfer of assets from one person to the other.
Now, other types of accounts that need you to name a beneficiary, these include things like 401K accounts, life insurance policies, annuities, things of that nature.
So, it was probably about three years after we set everything up for John and Jane that we got that call from Jane who let us know that John had died the previous week. When she called, I remember that she was pretty worried because she wanted to sell her home and move closer to Linda. Linda had some children of her own, and Jane just wanted to move closer to Linda and her grandchildren. She mentioned that there was a neighbor who was providing comfort to her over the previous week because the neighbor had lost her husband a few years earlier, and she was just helping Jane through that tough time.
Jane was worried because the neighbor had told her that it would probably be a year or more before Jane would even be authorized to sell the home. We let Jane know that what her neighbor did not know was that, since John and Jane had set up the Trust, and they had put their home into the Trust, that no probate proceedings were going to be necessary. We reminded Jane that since we had created her Trust and transferred her home into the Trust, that she could sell the home immediately. And, we told Jane that if she found a buyer for the home that afternoon, she could sell the home that afternoon. She was relieved to know that she wasn’t going to have to go through that probate process, and she did end up selling the home pretty quickly, and she moved into an assisted living facility very close to Linda. And, Jane ended up living for another couple of years after that.
But, it was probably about three weeks after Jane had passed away that we had gotten a call from Linda that Jane had passed away. We asked Linda whether she had any concerns that we needed to talk about regarding her parents’ estate. Linda had said something like, “It was really easy three or so years ago when Dad passed away. Mom really didn’t have to do anything at all. She had access to all of her accounts. She was able to sell her home quickly. She ended up moving closer to me.” Things really just happened very easily for her mom. But now that her mom had passed away, Linda was concerned about one of her two brothers. She said this brother knew that her mom and dad put her in charge of settling their estate and their Trust and that he called every day, sometimes twice a day, demanding his share of John and Jane’s investment account. They had about a $600,000 investment account. And, she said, “Listen, I know it’s only been a couple of weeks since Mom passed away, but I don’t know what to do. He’s really just driving me crazy.”
I told Linda that if her mom had left that investment account in her own name, then she’d have to go through a probate process that I so often have to help people through. And, we’ll often just bring the parties that are involved into the office and get them into an agreement on how everything’s going to go. And, we’d start the process by filing the court paperwork and making sure that the judge has everything necessary to approve the disbursements of the estate after all the estate costs have been paid. But, since Jane had set the Trust up, I told Linda that the assets were titled into the name of the Trust and that none of Jane’s accounts were going to be frozen and that she should immediately really just hang up the phone with us and call the financial institution where that investment account was being held, and that if she would inform them that Jane had passed away that I’m sure that they would already have a copy of her Trust in her records, that they would give her immediate access to the account, and that they would assist her in distributing the assets out to her and her two brothers. All, again, without having to deal with lawyers and judges and the probate process.
I do recall that that call from Linda came into our office on a Monday. It was three days later, on a Thursday, that she called our office to let us know that she had done exactly as we asked, and she called the financial institution and that her mom’s investment account had already been divided up between her and her two brothers, and things had gone really easily. And, so, I asked her about the relationship with the brother and how does the brother feel about getting everything settled so quickly. And, she said that he had actually called her that morning and because of the difficult time they had since Jane had passed away, she didn’t feel like taking the call, but she decided to take the call, and it was actually her brother calling to thank her for getting everything settled so quickly. And, what she had told me was that their relationship was getting tested, that it was her brother’s wife who was concerned that he wasn’t going to see a penny of his inheritance, and she made him call every day to try to get that inheritance. And, so, now that the estate had been settled so quickly, the brother had gotten his portion of his inheritance, she really expected that their relationship was going to mend between her and what would be her sister-in-law, her brother’s wife, because there really wouldn’t be any reason for there to be any mistrust in the handling. And, that’s really what John and Jane would have wanted when they set everything up.
Now, this whole concept that I’ve been talking to you about with John and Jane and their Revocable Living Trust and the Successor Trustee and the beneficiaries, we call that, again, in legal circles, the “Revocable Living Trust.” And, the primary benefit to John and Jane in setting things up this way is that when John died, Jane didn’t really have to do anything at all during her time of loss. She was able to sell the home immediately. She maintained access to all her financial accounts. And, then, when Jane died, Linda was able to get access to all of the assets, was able to disburse them in accordance with the terms of the Trust that we had set up for John and Jane, all without having to deal with the typical delays or difficulties or stresses or time, or the thousands of dollars you often have to go through when you have to go through the probate process. And, so, that is called the “Revocable Living Trust.”
There are all kinds of Trusts out there. There’s one that we have that is designed to avoid nursing home poverty. We call that “Medicaid Irrevocable Trust.” I think it’s called different things in different places, but typically it’s an Irrevocable Trust, and we’ll just put the name “Medicaid” in front of “Trust” so you can sort of know what all of that’s about.
We have what we call “Asset Protection Trust.” And, these are for people who, perhaps, they’re in an industry that will spur along lawsuits, like, maybe they’re a small business owner or maybe they’re a physician, or something of that nature. And, so, we help them use the law to protect their assets and really keep what they have so their children and grandchildren can benefit from their hard work. I love that old saying that “There’s nobody above the law, but there’s nobody below it either,” so, you can use what laws are on the books now to develop an Asset Protection Trust so that you can help protect what you have and provide an inheritance for your children and grandchildren.
Speaking of inheritance, I have some families that come in, and maybe they’ve got an over-controlling daughter-in-law or a not-quite-perfect son-in-law in the family. They’re kind of concerned about their son or daughter, who they’ve chosen to marry. And, they want to help make that inheritance divorce-proof. We’ll put that into what we call a “Children’s Inheritance Trust” so that those assets are typically segregated from all of the assets that the daughter or son and the daughter-in-law or son-in-law accumulated so that those assets will be protected from a divorce or creditors or things of that nature. We call that a “Children’s Inheritance Trust.”
We also have what we call a “2503(c) Minor’s Trust.” We work with those from time to time when we have a minor who is getting a Trust. And, what it allows is a lot of flexibility when it comes to, you’ve got a minor in the family and they’re receiving an inheritance, or maybe they’re the beneficiary of a life insurance policy but haven’t reached 18 yet. The Minor’s Trust will allow a Trustee to have some discretion in distributing some of those funds for health, education, maintenance, or support. We call them “HEMS,” Health, Education, Maintenance, and Support, so that the minor can be taken care of. They don’t have a right to the entire funds, and you can imagine why you wouldn’t want to give an 18-year-old their inheritance outright. So, if they’re a minor when they receive the inheritance, we call that a “Minor’s Trust” versus a “Children’s Inheritance Trust.” Typically, those are for adults who are already well into adulthood.
We also have people that come in because they have concerns about a special needs child. Maybe they need help with supplementing the needs of that person. That person may have some government benefits that they receive as a result of their special needs. And, so, we will set up what we call a “Supplemental Needs Trust.” And, it’s really designed to get them access to money without critically separating or critically having a negative effect on the government benefits that they receive. And, so, we call those “Supplemental Needs Trust.”
We also have what we call “Special Needs Trust.” Very similar to the “Supplemental Needs Trust,” but we call it a “Special Needs Trust.” And, this is really just designed to accommodate the specific need that a person might have, regardless of any type of government assistance they might receive. Sometimes, special needs children don’t necessarily receive government assistance, so we’ll set up a “Special Needs Trust” so that there will be a Trustee that can take care of them because they may not be so savvy with finances that the parents knew and they had concern in that area. So, we’ll set up a “Special Needs Trust” to make sure they have that peace of mind that their children are going to be taken care of if something were to happen to them.
There are many different types of Trusts. Those are, generally, the highlights. At our office, as I mentioned, we settle estates, we help people go through that probate process when they come in with a loved one who has passed away with a Will. But, we also plan estates and, typically, we will set up a Trust for somebody so that they can avoid that entire probate process.
Sometimes people come in and a Last Will and Testament works for them. Usually, they’re young adults who are married and have very minor children. Typically, if you’re older and your children are in their teens or they’re in adulthood, we’ll do something a little more complicated, more complex, like a Revocable Living Trust or Inheritance Trust or a Minor’s Trust, things of that nature. And, we tend to see those in people who are not new parents, for example.
And, so, those are just some of the ways that we help people when they come into the office and they need help planning an estate. And, one of the primary vehicles we use these days are Trusts, and there are many different types of Trusts. And, it really takes time to sit down with an experienced estate planning attorney to determine which one of those might work best for you. But, if you want to make your estate something simple, you want to avoid the probate process, you want to help your children with a not-quite-perfect son-in-law or a troubling daughter-in-law, you have a special needs child that you want to take care of, or maybe you’re in a second marriage situation, those are the types of situations we will typically develop a Trust for to help people, guide them through their life, and give them that piece of mind that comes along with having their estate plan in order. We do that everyday of the week, and we’d be glad to assist you in that, as well.