Dear Jonathan: My financial advisor is pestering me to create a trust for the purpose of holding my assets for probate avoidance. However, I am really not interested in creating a trust and I am not all that concerned with having my estate being probated. The only thing that matters to me is that my children get whatever is left of my estate in equal shares, and if my assets have to be probated first before that happens, so be it. Am I wrong in thinking this way?
Jonathan Says: Not necessarily; there is no right or wrong answer here. What’s more important is that you are making an educated decision as to whether to create a trust or not. If probate avoidance is truly not a concern of yours, and you don’t mind having your estate pay the fees associated with probate, which include court filing fees, an inventory or appraisal fee based on the size of your estate, executor or personal representative fees, and attorney fees which will be incurred in having an attorney represent the executor/personal representative of your estate through the probate process, then there is nothing wrong with opting not to do a trust.
Having said that, however, it is difficult to give you a specific answer to your question without having more information. For instance, how large is your estate? If it is sizable, that will only cause the cost of probate to go up because the inventory/appraisal fees that are paid to the probate court are based on the value of your assets. Consequently, the more you have in value, the more you will pay in inventory/appraisal fees. While you may not consider this to be a determining factor, when you add those fees to the executor/personal representative fees and attorney fees incurred during probate, that is money that could have been saved if probate had been avoided.
A more critical question to ask is what are the ages of your children? Are they adults or are they minors? This is important because if they are minors and you don’t have a trust, then whatever assets a child is entitled to receive will need to be held in a conservatorship account on that child’s behalf until he or she reaches the age of majority, i.e., becomes a legal adult, which is between the ages of 18 and 21 depending on what state you live in. At that time when your child becomes a legal adult, whatever share to which he or she is entitled will be distributed to him or her outright. Consequently, if you have a large estate and you don’t have a trust, then you would be putting a lot of money in the hands of an 18 or 21 year old who may not be mature enough at that age to receive a sum of money that large. If you had a trust, however, you could require that a child’s share of the trust be distributed to him or her in increments over a series of ages, which would give the child time to mature and gain some experience in the real world before being given a large sum of money. In the meantime, funds would be available for the child’s health, education, maintenance and support.
If you decide not to create a trust, you will want to at least prepare a last will and testament so that you can direct your estate to your children in equal shares upon the completion of probate. If you die without a will, then your estate would be distributed to your heirs according to the laws of the state in which you live. If all of your children survive you, then the result would probably be the same whether you had a will or not, however, if any child predeceases you, you can name an alternate beneficiary in your will who is to receive that deceased child’s share, which might be someone different than who would receive that deceased child’s share under your state’s law if there was no will.
Before making your final decision, I suggest that you meet with an estate planning attorney in your area who can review with you the pros and cons of preparing a trust in a general sense, as well as specifically in your particular circumstances, upon which you can then make an educated decision as to whether preparing a trust makes sense for you.
Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, PC, 1700 East Beltline, N.E., Grand Rapids, Michigan 49525.