Most people think that a will is essential to ensure that their estate will be distributed correctly after their death. However, common administrative expenses of a standard will may take up a large portion of that estate before it ever reaches your heirs.
First of all, look into your state’s laws. If your only heir is your spouse, and your estate is small, many states already provide that one spouse’s property automatically transfers to the other upon death.
Probate is the process by which a will is executed, and many people choose their attorney as their executor. What many people don’t realize is that the executor will be allowed a generous fee for his services. This is usually a percentage of the estate, and can be thousands of dollars. For example, an estate worth $100,000 may incur administrative expenses of $35,000, leaving only $65,000 for the heirs.
Some people try to avoid this by transferring property during their lifetime. This can also backfire. If the elder then needs nursing home care within a specified time, and can’t afford it, state Medicaid can recover the asset to pay for the medical bills. Or the family member you deeded the house to sells or mortgages it out from under you. Or the heir’s creditors attach the property for his debts.
For many people, a living trust can avoid these problems. The trust is established as a separate “entity” to which you transfer ownership of your property. During your lifetime, you are the “trustee” who controls the use of the property. Upon your death (or disability, depending upon the terms you specify), the successor trustee you choose takes over.
There’s no need to go through probate and no outside administration expenses to cut into the value of the estate. Everything remains to be divided among the heirs.
A living trust can be drafted by a qualified attorney. Look for one who advocates the living trust. Expect to pay a higher fee for a living trust than for a standard will. Many attorneys offer bargain prices on will because they know they will make thousands on the probate.
A good living trust package may include a “pour-over” will leaving all untitled personal property to the living trust, a durable Power of Attorney (in case of disability), a Living Will and appointment of healthcare representative (to make medical conditions if you are unable to communicate your wishes), as well as a customized living trust document detailing your wishes. Most trusts will lists specific trust heirs, percentage of distribution to each heir, and special bequests.