We often ascertain how we can assist a client during an extensive consultation in which we glean a great deal of pertinent information about the individual’s family, health and financial portrait. Clients are always given ample time to ask questions during these consultations. One of the most commonly asked queries is whether a client needs a trust. Often, the client will come in and ask for a trust without really knowing what a trust is or the reasons behind it. The following information should be helpful in determining whether a trust is in fact appropriate for one’s estate plan.
When a person dies (“decedent”), anything owned by him and in his name is referred to as his estate. Individuals are able to designate who should receive their assets when they die by signing a Last Will and Testament. The will essentially enumerates who should be the recipients of the individual’s assets when he dies. When the individual does in fact pass away, the only way anyone can access the assets that are in his name individually is by probating the will in Surrogate’s Court. Probate is the process by which the Court “proves” the will and ensures that everything was done properly. When a decedent has no will, state law dictates who is entitled to the decedent’s estate. For example, if a husband dies without a will, leaving a wife and children, the wife inherits $50,000 and the balance of the estate is divided equally between the wife and children. If an individual dies without a spouse or children, his parents inherit. If the parents are deceased, his siblings inherit. If a sibling has passed, the sibling’s respective children inherit. All these rules are referred to as the laws of intestacy and any person who stands to inherit something is referred to as a distributee.
When a will is being probated, the court requires that any person who would have inherited something if there were no will, i.e. a distributee, must be given notice of probate. This is often not an issue. If Dad dies leaving Mom and three kids and his will directs that everything should pass to Mom, the kids will just sign waivers indicating that they consent. In other words, they will not object to the fact that under state law, had there been no will, they would have been entitled to nearly fifty percent of Dad’s estate. Nonetheless, there are instances in which obtaining a waiver from a distributee may be problematic. An illustration of this would be a single parent of two children who is completely estranged from one of the children and therefore leaves his entire estate to the other child. The child who is disinherited may not be willing to sign a waiver indicating his approval. The child instead may choose to fight, or contest, the will. The court, by requiring service on the person who fails to sign a waiver, essentially gives that disinherited party a road map as to how to contest the will. This does not mean the disinherited child will prevail. It is very difficult to overturn a will and the burden of proof is on the contesting party. Nonetheless, it does mean that the disinherited child can slow down the probate process considerably and create a great deal of anguish and expense in the process.
In this situation, it would be far more prudent for the estate planning attorney to recommend a trust. If a person, during his lifetime, transfers all of his assets to a trust, upon his death everything will pass to the named beneficiaries without the need for any probate. Assets held by a properly drafted trust can be distributed (according to the terms of the trust) without any need for probate and without any delay.
Accordingly, in a situation where a person wishes to disinherit someone who would have inherited had there been no will (i.e., according to state law), a trust would be a more appropriate vehicle so that the probate process is avoided. The same rule applies in a situation in which the person doing the planning has only distant relatives or when there are distributees who cannot be located. If a distant cousin is the only living relative of a decedent and the executor has no idea where such person is located for purposes of giving him notice, the court requires a significant amount of due diligence in attempting to locate such person. Simply submitting an affidavit saying that he could not be found does not suffice. Again, if these facts are presented initially, a trust should be the instrument of choice.
As mentioned earlier, the probate process is initiated every time someone dies with assets in his name individually and without a named beneficiary. With respect to real property that is in the decedent’s name alone, probate must be initiated in every state where the property is located. The main probate is initiated in the county where the person resided When a person dies owning property located outside of their domiciliary state, the decedent’s heirs must bring an ancillary (or another) probate or administration proceeding. Even if everyone gets along and no will contest is anticipated, ancillary probates can be extremely costly and time consuming. Therefore, a trust should be used instead of a will for anyone who owns real property in more than one state.
Finally, when a will is filed for probate, it becomes a public document. This means that anyone who is interested can review the will with all its pertinent provisions. Many people place a high premium on their privacy. They may prefer to use a trust rather than a will to dictate how their assets are ultimately distributed.
Based on the above, it is clear that there are significant advantages to executing a properly drafted living trust. Discussing one’s personal situation and circumstances with an experienced estate planning attorney is helpful in determining what form of planning should be used.
Ronald A. Fatoullah, Esq. is the founder of Ronald Fatoullah & Associates, a law firm that exclusively concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner of Advice Period, a wealth management firm, and he can be reached at 424-256-7273.