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Chapter 3: I have a very simple situation and just need a basic will

man reading a will

Your friend drives a Ferrari, has a helipad in his backyard and collects rare works of art.  He has three ex-wives and four children, one of whom he wants to disinherit.  He owns property in a number of countries and the IRS is currently investigating his recent tax filings.

Now, you know that he needs a trust.  But surely you don’t need a trust when you have significantly fewer assets and ex-wives than he does?

Every new client conversation goes something like this:

Client: “I have a very simple situation and just need a simple Will.  I don’t need anything else.”

Me: “That’s great.  Are you married?”

Client: “Yes.”

Me: “Do you have children?”

Client: “Yes.”

Me: “Do you own a house?”

Client: “Yes.”

Me: “Do you own anything else?”

Client: “No.  Oh, I do have $300k spread across 6 different brokerage accounts and $500k in an IRA.  Is that what you mean?”

What happens if he just makes a simple Will?

When he dies, his Will must be filed in Probate Court and all of his assets must complete the probate process before they will be available to his heirs.  What’s wrong with that? 3 things:

1. Probate is expensive.  A good estimate is that 5% would be wiped off of your estate just in attorney fees, filing fees, executor fees etc.

2. Probate is a long and arduous process.  Have you ever heard of probate friendly states?  There are some out there; but California is probate unfriendly.  It can easily take 18 months for a relatively simple estate to work its way through probate court.  A client of mine described probate court as “the DMV on steroids.”  It is a bureaucratic nightmare that your family will have to deal with after you are gone.

3. Probate is public.  Everything that happens in probate court is a matter of public record.  Your personal affairs that once were private are now available for inspection by anyone who is interested. 

Can this miserable and expensive ordeal be avoided, I hear you ask?

Yes it can.  But a Will alone is not enough.  You would need to create a Revocable Living Trust. 

By transferring your assets into the trust, or re-designating beneficiaries of your life insurance or retirement accounts, all of which should be done in accordance with instructions from your attorney, you will avoid your family having to deal with the probate court.

The trust agreement is a private document, so after you pass away, your family will meet in your attorney’s office.  Whoever you have nominated to handle your financial affairs will be able to do so conveniently and privately, without court involvement.

A bonus feature of the trust agreement is that it doesn’t just make things easier for your family after you pass away; it also works if you become incapacitated.  Instead of having to go to court to appoint a conservator, or rely on a power of attorney (which is discussed in a later chapter), the person that you named in your trust as “Successor Trustee” will be able easily to step in to manage your finances and make sure that your bills continue to get paid. 

Ultimately this presents a choice for everyone: spend a little more now to make things easier and cheaper for the family you leave behind, or leave it to them to deal with after you’re gone. 

To be clear: the sentence above is not making any judgment.  There are plenty of people who have good reasons for creating a Will rather than a trust.  However, for the people who are looking to make things as easy as possible for the people that they care about at a very sad time, it is important to clear up the misconceptions and misinformation regarding Wills.  A Will alone will not keep your family out of the court process.

Who does not need a trust?

Anyone who answers “No” to all the questions I posed in the hypothetical above does not need a trust.  In addition, the current probate exemption amount in California is approximately $166,000.  If your “probate estate” is worth less than that, no probate is required.  How your probate estate is calculated is beyond the scope of this chapter. Note, however, that if you own a house, the market value of the house is used for the purposes of calculating your probate estate.  So if you own a $1,000,000 house and have a $900,000 mortgage, you have a $1,000,000 asset that will go through probate.

Bottom line

 things are rarely as simple as they seem.  If keeping your family out of court and conflict is your goal, it is important to critically assess exactly what would happen to your assets if something happens to you.  Once you’re clear on that, you will be able to decide whether a Will based plan or a Trust based plan is right for you. 

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