A recent post on a neighborhood bulletin board answered a question about getting information about wills by saying:
“Trusts are designed to make money for lawyers. If you don’t trust your family to honor your wishes or you have over 11 million dollars, a trust is a nice option. Every time you buy or sell a car or change bank account your trust needs updating. Cha-ching $$ for the lawyers. Probate fees are minimal in comparison.”
Is this right? Are trusts designed to make money for lawyers? Not from where I sit.
There are a couple of functions a revocable trust can serve. First, it protects your minor children. If both parents die or become incapacitated, in the absence of a trust some adult will have to petition the court to become guardian of the estate of the children, which will require periodic accountings to the court (and attorney’s fees and accounting costs), and when the children are 18, they get their inheritance. Having a trust in place will make it unnecessary to get the court involved, and will provide for an adult to manage the children’s money until the children are old enough to manage their funds themselves. You get to tell the successor trustee what the conditions are and when the children will get their funds.
The second function a properly funded revocable trust can serve is to avoid probate. By law, probate fees are based on the value of the estate. Fees on a million-dollar estate are $50,000, because the attorney and the executor each get a $25,000 fee. Fees on a small, $200,000 estate are $7,000 for the executor and $7,000 for the attorney. In addition to fees there are court costs, which will run a couple thousand dollars.
The cost of setting up a trust and assistance with funding the trust costs a fraction of that amount.
How do you fund the trust? You change the title to your assets, so that the person you appoint to take over when you die can access to them without court involvement. This involves a deed on real property, and transferring your financial assets to a trust account.
The writer is wrong that you have to update your trust every time you buy or sell a car of change a bank account. You can buy or sell your assets without changing your trust. You don’t need an attorney to do these things, but you do need to know how to title assets. The attorney who sets up your trust will explain these things to you, and should help with the initial funding.