No Estate Plan Is Right for Everyone
One can scarcely read the newspaper or
turn on the TV or radio without being exposed to advertisements or
seminar invitations trumpeting the benefits of a revocable living
trust.
The advertised message is clear: A
trust is a necessary component of all estate plans, and if you don't
have a trust, financial catastrophe will strike after you die ... if
not before.
The truth is that, while revocable
living trusts offer many benefits, especially to individuals with
substantial assets, they are not the be-all and end-all of estate
planning. The phrase "one size fits all" may apply to bathrobes, but
not to estate plans. There are simpler and less expensive options
that may prove just as beneficial as a trust.
Before you settle on any estate
planning strategy, you should be aware of the relative merits of all
three basic estate planning devices:
It is virtually impossible to weigh
these options without considering how each fits your own particular
situation: your age, marital status and family status; the size and
diversity of your estate; your present and future income potential;
and your preferences regarding privacy, assumption of risk, and
paying now versus paying later.
A competent estate planning attorney
can explain how factors such as these can affect the results and
protections available from the various estate planning options (a
consultation to discuss your choices need not be lengthy or
expensive). For the purposes of this very general discussion,
though, certain basic points can be made about each.
Joint Tenancy
Often called the "poor man's estate
plan," joint tenancy is inexpensive to create and is very effective
in avoiding probate.
However, there are risks that make its
use inappropriate in most situations, other than between spouses.
For example, if a parent places a child's name as joint tenant on a
bank account, that child has full access to the parent's funds, and
the child's creditors may make claims against the parent's account.
If a parent owns real property in
joint tenancy with a child, the child has what amounts to veto power
on any sale, since all joint tenants must sign sale documents. Also,
if a parent has more than one child, but only one child is named as
a joint tenant with the parent, the parent's death might bring about
a dispute between the children or result in a distribution of assets
never intended by the parent.
Simple Will
Advantages of a simple will include
minimal initial cost, the security of court supervision in the
probate process, and the ease and flexibility of changing the will.
On the minus side, if the value of a
decedent's net assets exceeds $50,000 in personal property and/or $75,000 in
real property, Arizona law requires the
estate to be probated. In probate, asset distribution may be delayed
for 120 days or more while creditors' claims are resolved, private
matters become public, and the decedent's estate incurs legal
expenses, which vary with the size and nature of the assets
probated.
Trust
On the other hand, assets that are
placed in a trust are not subject to probate. This reduces legal
fees and eliminates court costs incurred after the death of the
trustor.
A trust also provides for relatively
smooth administration of the trust's assets after the trustor's
death, and it avoids the need for a court-appointed guardian in case
of incapacity.
Trust administration is fairly simple,
although changes in circumstances may require the periodic but
relatively inexpensive assistance of an attorney. Also, trusts are
especially appropriate if the trustor owns real property in more
than one state, since estate administration in the courts of two or
more states is expensive and burdensome.
The negative aspects of a trust
include the cost of establishing it. In contrast to a will, which
offers low initial costs and defers other costs to the time that the
will is probated, the expense of a trust is incurred when it is
created. Additionally, some find it inconvenient or burdensome to
transact their affairs through the trust once it has been
established and assets conveyed into it. Further, trusts are often
falsely touted as a tax-savings device. While proper use of a trust
can minimize estate taxes by ensuring maximum advantage of the
unified tax credit and marital deduction, a properly drafted will
can accomplish the same purpose.
Conclusion
This discussion is by no means
intended to cause confusion as you consider the proper estate
planning strategy. Rather, we wish to emphasize that no single
option is appropriate in all cases, and the one you select should
reflect your values, priorities and goals. Beware of any sales pitch
that suggests otherwise.
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