Most of my clients opt for a trust-based (or trust-centered) estate plan. That means that a trust, usually a revocable living trust, is serving as the centerpiece of the estate plan. The trust is doing most of the work in terms of incapacity planning and death planning.
One of the reasons (not the only reason) for a trust is to avoid probate. The key to avoiding probate is to die owning nothing, and the revocable living trust helps you do that without losing control of or access to any of your hard-earned assets. If you put all of your assets in your trust, then you die owning nothing, because your trust owns them, not you, and trusts don't die! Viola! Probate is avoided.
Note that some assets should NOT be put into a trust. The best example of this is an IRA. You technically CAN retitle your IRA to your trust, but to do so would subject your entire account to taxation immediately, and for most people that would be a very bad idea, so we use death beneficiaries for IRAs instead, often naming a trust as the primary beneficiary. Please see this other article on that.
So all of that begs the question, why would anyone need a will if they have a trust-based estate plan and everything is either in the trust or has death beneficiaries already named? After all, the purpose of a will is to specify who gets the probate assets (assets still owned in the decedent's name immediately after death), and there won't be any, right?
Well, yes, right, there PROBABLY won't be any probate assets, but there MIGHT be. That is because things can and sometimes do fall through the cracks through negligence or inadvertence or through no fault of anybody. A thing should have gone into the trust, but it didn't. Here are ways that can happen:
- Client gets hit by a bus or has a heart attack and dies on the way to the bank where he was going to retitle his bank accounts to the trust. O ops. We now have some probate assets because the bank accountsdid not make it into the trust (and I am also assuming no death beneficiaries as well).
- Client purchases a vacant lot next to his house to preserve the view. Out of habit, client makes the offer in his individual name. The title company, therefore, draws up the deed in the client's individual name, and then records the deed that way. Client forgets to ever mention this to me so that we can prepare a new deed transferring the lot from him to his trust. The client COULD have made the offer in the name of the trust and COULD have taken title in the name of his trust, but he simply forgot.
- Client purchases a motor vehicle from a car lot. Same as the example above, i.e., out of habit he takes title in his individual name.
- Client is hit by a bus on the way to the bank and lives. The client sues the school district for his injuries. The school district's insurance company offers the client $150,000 to settle his claim. The client signs a release and waiver of claims stating he is willing to accept a check in the amount of $150,000 in full satisfaction of his claim. The check is placed in the mail. Client dies. The check arrives one day later (yes, I have had something similar to this happen). That check is now a probate asset. We need a will to get the check into the trust so that all of the trust assets can be administered together.
After your trust is created, be very diligent about transferring your assets to your trust or naming your trust as death beneficiary, all as instructed by your attorney.
After your trust is created, be diligent about developing a new habit of never putting your individual name on anything that you acquire later. This applies to things with title or ownership records such as bank and brokerage accounts and certificates of deposit, real estate and motor vehicles, airplanes, registered boats, etc., anything with a "statement" or an ownership or registration certificate or other kind of "title".
Even if you do all that, there is nothing we can do to avoid the problem of the refund or settlement or rebate check that arrives after death. Those will be probate assets. Sometimes we just let those things go because they are so small, such as the $20 class action settlement check, if we are in a state that does not have an easy way of collecting by affidavit without going to court. But for the bigger things that fall through the cracks, we need a will, usually a so-called "pour over" will, to use to administer those in probate court. A pour over will is so called because it "pours" the probate assets "over" into your trust.
Everyone should have a will, whether or not your estate includes a trust. Call us at 931-250-8585 to discuss what we can do to make your estate as easy as possible to administer after your passing.