The largest asset most people own is their family home. It is not only the center of their family life, but security for the surviving spouse and children. It is often the major source of wealth providing an inheritance to one’s survivors.
A trust is legal arrangement or contract into which you can place your home, bank and investment accounts as well as other assets so that they can be used by you or your future heirs.
Trusts typically offer much greater control than a will over who will receive your assets and how and when the beneficiaries will receive their share of your estate.
Trusts are not just for the rich or for older adults. In fact, it could be argued that those with modest means have the greatest need to preserve what they do have!
One of the principal reasons people put their house in a trust is because assets in a trust do not go through probate when you die. Using a will to distribute your property after you die guarantees that everything will go through probate. Probate is a public court process. It allows anyone to see everything that was in your estate when you died, how much it was worth, and who received all your things.
One of major disadvantages of probate is that it is expensive. 18 States have fees that are directly based on the size of the estate. Most others use the “reasonable compensation” standard. Reasonable compensation however is in the eye of the beholder, meaning the probate judge. Here in Hawaii reasonable compensation typically runs between 3%-7% of the “gross estate value.” When calculating the “gross estate value” the mortgage on real estate is not considered. In September of 2021 the median sales price of a single-family home on Oahu was $1,287,867. 3% – 7% of that amount is $38,636 – $90,151. The required publication cost in the local newspaper of the notice of opening of a probate estate is over $1,000 just to start.
Another major disadvantage of probate is the significant time involved. It is not unusual for it to take 7-15 months to complete the process during which time the heirs do not have access to their inheritance. In complicated or contested cases, the time can run into decades and require huge legal fees and court costs.
Some say that trusts are complicated and expensive. That use to be true, but with today’s technology and internet access, those excuses are no longer valid. My company, Interactive Estate Document Systems, www.ieds.online makes comprehensive law-firm quality estate planning document packages, including trusts available quickly and affordably, for less than the cost to publish the opening of a probate estate.
There are many other reasons for establishing a trust for your assets including creditor protection for your heirs, placing conditions on passing property to your heirs, blended families and many others that we will explore in later articles.
