Why A Revocable Trust?
I had a client come up to me, and they were dead set on getting a revocable trust estate plan, which is an estate plan that skips probate. It’s a Will replacement. We do this instead of a will to try to avoid the court system at death. And there are some great reasons to do this. The primary advantage is that you avoid probate. Probate has a reputation, and some of it is well-founded, for being very expensive. If you do a will, it’s going to go through probate. Wills control probate. So, you have the cost of the will plus whatever that cost of probate.
The Probate Expenses
If we’re doing a will document, we have to embrace the cost of probate down the road. Secondly, it can be anything as some states are $50,000 to get through probate Minnesota something less than $10,000, hopefully, closer to $5000. The point is, there’s going to be some expenses for your beneficiaries, your heirs.
Time In Probate
Next, it can take a very long time. We have some probates that are they’re just waiting in line. For example, it’s been six months. It’s a court hearing, so you have to get on the calendar, and our courts are backed up. Now we have a family who would like to sell the house, and they’d like to start processing that distribution to the kids, but I can’t just make house payments and property taxes and tax property tax payments until we get the authorization to sell it. That is a court authorization.
And thirdly, probate is very public, so maybe I don’t want people to know my little kids are getting money if I have something about my estate. The court systems are public, so anything that’s going on in my life is now going to be a public thing. Revocable trusts skip those three things because they skip probate. You don’t have the administrative expenses or as much of them, you everything happens on the kitchen table, so it’s privately, and it’s much faster. My wife and I have a joint revocable trust that the second death, theoretically, they could sell the house the next day. It’s very fast.
Problems With Revocable Trusts
The disadvantages are: first, they’re more expensive to set up. There’s more lawyer work; I would not do this on your own. I would talk to a professional. They cost more upfront; you make that up in the long run, but upfront for some families’ cash flow is an issue, so we just got to be a little careful about that and make sure there is value. And secondly, the weak point of these things is they only control the things that end up in the trust. I like to think of this as being like an open Ziploc bag, so I got to get my house into this thing. Suppose I want my life insurance to be controlled by this. In that case, I’m going to name the revocable trust as the pan death beneficiary of my life insurance, so it goes in there if I forget something if I buy another house. I don’t put it in the thing that things’ not going to be controlled by the house or the cabin or whatever it is, is not going to be controlled by the trust. So we have some stuff controlled by the trust and some stuff that will get controlled by the court. We don’t want to do that, so you got to remember you have it, those are the big disadvantages, but overall unbalanced, a very powerful tool for estate planning makes things a lot easier for families.