“I want to avoid probate!” These are the words that often come out of a client’s mouth when he or she first meets with an estate planning attorney. However, take a step back and ask yourself why it is important to avoid probate. Most people want to avoid probate just for the sake of avoiding probate. They think putting all their property into a trust will be cheaper, easier, and more convenient. However, this is usually not true. A trust can be a convenient tool, but it is usually not a good idea for most individuals.
Here are some of the common misconceptions regarding trusts:
My estate will pay less in estate taxes if I use a trust.
My family will avoid the hassle of going through the probate system.
The trust will transfer the assets promptly after my death.
Money will be saved in attorney fees and court costs.
In January of 2013, the Ohio legislature abolished the estate tax, also known as the death tax. While a federal estate tax still exists, the exemption amount of $5.45 million for an individual, and $10.9 million for a married couple makes tax savings a non-issue for almost everyone. If a single person has an estate larger than $5.45 million, then he or she should consider a trust or other sophisticated estate planning tools. Smaller estates can be disposed of using a will.
Many people want to avoid probate due to misconceptions about the process. The probate court supervises the administration of decedents’ estates and makes sure no beneficiary is being treated unfairly. If siblings do not get along, probate may be preferred because the court will make sure the executor files important documents, such as an inventory and account. Probate may also be necessary if someone neglects to title an asset in the name of the trust. The probate system may then have to be used to move the forgotten asset into the trust.
Probating an estate does not take as long as people may think. The administration of most estates can be concluded in six months to a year. This process is very similar to the procedure that is used to transfer assets via a trust. It may take even longer to transfer assets using a trust because the probate court is not there to supervise the process and make sure it moves promptly and goes smoothly.
Court costs will be avoided with a trust, but that does not mean he or she will save money. Typically probate court costs are less than $400. The legal fees to draft a trust are more expensive when compared to the costs of preparing a will, and one will normally have to employ an attorney to help administer the trust. It is easy for a trustee to convert assets for his or her own use which cheats the other beneficiaries. If this happens, it could result in litigation that would not occur in the probate process. In the end, trust administration can be just as costly as the probate process.
To determine whether a probate or a trust will be the most cost effective option, one must balance the potential expenses. A trust is usually substantially more expensive than a will, and there may be additional expenses to assist the client to transfer assets into the trust. In addition to those costs, one must add the fees of having the attorney assist with administering the trust, and of having an accountant assist with the income aspects of the trust. For a simple probate, one should add the costs to prepare the will and the costs for the attorney to assist with the probate.
While a trust is a very useful estate planning tool, it is not the best option for most individuals. Probate is not the inconvenience everyone thinks it is, and in most cases, it can be very helpful in administering an estate.