What Is A Trust?
A Trust is an estate planning document that distributes a deceased person's (decedent's) assets. In this way, a Trust is similar to a Will. The most important difference between Trusts and Wills is that Trusts avoid probate altogether, while Wills must go through the probate process before the decedent's assets can be distributed to his or her beneficiaries. For many people, it is a wise choice to avoid the expenses and delays involved with the probate process.
What Is Probate?
Probate is a court process required to remove assets from a decedent's name so that those assets can be distributed to the decedent's beneficiaries. Under Florida law, a layperson cannot represent the decedent's estate in the probate court; a probate attorney must be retained to represent the decedent's estate.
Probate is not usually a complicated process, but it is generally time-consuming. For an estate valued at $75,000 or more, the probate process generally takes one year to complete, so there is a one-year delay before the beneficiaries receive their gifts. Another primary concern with probate is the expense; because an attorney must be retained for probate, it is not an inexpensive process.
What Does Probate Cost?
Under Florida law, the minimum recommended probate fee (the fee paid to the attorney who represents the decedent's estate) is 3%, but most attorneys charge 5% or more. When probate is viewed as a percentage, it doesn't look too awful - only 5% to the attorney, typically 3% to the Personal Representative of the estate, and a whopping 92% for the beneficiaries. However, to get a better understanding of what probate will cost your estate, I prefer to break the percentages down into dollars. If your probate assets (i.e., all real estate, stocks, bonds, other securities, checking, savings, money markets, and CDs) are valued at $500,000, then the probate fee to the attorney is $25,000. The fee to the Personal Representative is another $15,000, and the beneficiaries will receive $460,000 once the yearlong probate process has been completed.
Should I Be Concerned About Probate Costs and Delays?
To determine whether you should be concerned about probate costs and delays, ask yourself a few simple questions: Given that the attorney was paid for creating the Will at the time it was created, does the attorney now deserve an additional $25,000 probate fee (using the $500,000 estate example)? Should your beneficiaries receive everything you leave them, or should an attorney take 5% off the top of every gift you make to your beneficiaries?
If any of your beneficiaries are charities that rely on donations and bequests for their survival and to fund their good works, the charities likely need your full gift. Another question to consider is whether the charities you leave gifts to will need the money at the time of your death, or whether it is best to make the charities wait one year after your death to receive your gift.
If the costs and delays in distributing the estate strike you as wasteful or not in line with your end-of-life goals, then you should create an estate plan that avoids these costs and delays. The best way to accomplish this is to choose a Trust as your estate-planning vehicle.
How Does A Trust Work?
In a husband and wife example, husband and wife are the Grantors (creators) of the Trust. They are also the Co-Trustees (managers) of the Trust. The Grantors register all probate assets (all real estate, stocks, bonds, other securities, checking, savings, money markets, CDs) to the Trust, so that the name on those assets reflects the word "Trust" or "Trustees" after the Grantors' names (e.g., "Robert P. Charles, Susan M. Charles, Trustees"). The Grantors do not lose any ownership or management rights to their trust assets. The Grantors specify what gifts are to be made to beneficiaries named in the Trust at the time of the second Grantor's death (just like a Will). A Trust may be amended (changed) in writing any time the Grantors wish to make changes to any part of the Trust. One or more successor Trustees are named who will manage the Trust for the benefit of the Grantors in the event the Grantors become incapacitated. When the first spouse passes away, the surviving spouse owns all trust assets and is the sole Trustee of the Trust estate. Once the second spouse has passed away, the successor Trustee pays the final debts, the final income taxes, and distributes the assets in the estate. Typically, a Trust estate is settled (i.e., final debts and taxes paid, assets liquidated, and all beneficiaries paid) within 60-90 days of the last remaining Grantor's death.
Why Is It Possible To Close A Trust Estate So Quickly?
A Trust estate is settled very quickly because no probate is required. When a Trust is created, the title on the assets is changed from a person's name (e.g., "Susan M. Charles"), to a Trust entity name (e.g., "Susan M. Charles Trust"). The probate process is necessary only for assets held in a deceased person's name; assets held in an entity name are not subject to probate. This means that the successor Trustee does not have to go through the probate court to close the estate, saving the yearlong probate delay before the beneficiaries receive their gifts. Another enormous benefit to the estate is that no attorney has to be paid to close the estate, which saves the 5% attorney's probate fee.
What Does A Trust Cost And How Do I Create One?
Each attorney determines his or her fees for his or her work. The fee for a Trust in the Tampa Bay area will typically range between $1,500 and $3,000. Since each attorney will set fees as he or she sees fit, just call the attorney's office and ask what the attorney charges for a Trust.
Only licensed attorneys should create trusts. This is the only way to be certain that the Trust correctly accomplishes your goals, and is created in accordance with Florida law.
