I often get asked about who needs trust, who does not need trust, and why do you like trust so much? Frankly, that question often comes from referral sources of mine at the very outset of our relationship who are concerned that I’m just going to try and fit everybody to one kind of plan.
The answer to me is very simple, but it’s a much lower bar than what people imagine. The simple answer is that I like trusts to help avoid unnecessary court and provide agility for an unknown future.
Let’s start by talking about an unnecessary court process, probate:
Anybody who owns any real estate will get value out of a trust, and here is why. In Illinois, if you own any real estate in just your name when you pass away, your estate will go through probate in each County that you owned real estate.
So if you have a house in Geneva and a vacation home in Florida, you’ll have probate up here and ancillary probate in Florida. And for those court processes your trustees or executors will be paying thousands of dollars each, most likely, to lawyers in two different states to cover that work. The AARP magazine did a survey years ago on the average cost of probate across the country.
What they found was that the average cost of probate is between 4% and 7% of the value of somebody’s estate. What I see around my area it’s really somewhere in the $5,000 range is what I would imagine most simple probate cases cost, but if your family has conflicts, if there’s going to be creditor issues, if there’s going to be other people coming out of the woodwork, that’s only going to drive the cost up because probate is usually charged an hourly fee. This means you’re paying attorneys hourly to go to court for you.
If “going to court” meant just dropping something off and heading back to the office, that would be one thing, but unfortunately, when an attorney is in court they’re not on their own clock, they’re on the judge’s and court’s time.
As a matter of practical business operations, attorneys cannot afford to be sitting in a courthouse for free, so they charge their clients hourly and say, “Hey when I have a court call at nine for your dad’s probate case and the judge doesn’t see me until 11, I’m charging you for two hours of sitting there.” That is one of the reasons, even without family arguments or creditor controversies, probate can get really expensive.
In fact, the shortest probate process could be would be about 8 months. I get to that number because in Illinois probate works like this: When you pass away and probate is required your attorney will put a newspaper for three weeks a notice that says something to the effect of, ”Hey everybody Brandon is dead, and here’s where you can make claims against his estate.”
When the three weeks are over a six-month creditor window opens up and during this half-year creditors can come out of the woodwork and say, “Yeah he owes me money for the mortgage, or for this credit card.” Or the cousin can have an attorney come to court and say, “I loaned him money to go to the Final Four in 2005 to see Dee Brown take on North Carolina and he still owes me that money!”
Those kinds of people get in front of a judge and through their lawyers, they make their arguments and the judge decides what claims are valid and what ones aren’t. The valid claims are paid out and invalid claims are not. Then after that final numbers are tallied up and assets are distributed to the beneficiaries.
So if you look at 3 weeks for the publishing in a newspaper, six months for creditors and cousins, and some time on the end to wrap things up, that’s where I get to the 8 month minimum for probate.
By the way, 8 months assumes that everything is going right. If there’s an ongoing controversy because of family dynamics or creditor issues, probate can go on and on and on. There’s no maximum time that forces a probate process to end. In fact, the estate of Tom Carvel, the man credited with the invention of soft-serve ice cream who passed away in 1990, was litigated for 19 years! Obviously, that is an outlier, and if it’s nice boring probate the process will be about eight months.
So how is trust related to avoiding this unnecessary probate process?
If you have a house and you don’t have a trust that holds a title to that house you’ll be going through probate. If your house is just in your name it’s going to put you through probate. That’s it! The major exception to this rule has to do with something that is usually called a transfer on death instrument.
In Illinois, you can record a TODI with the county recorder’s office and if everything goes right for the rest of your life and the lives of the people you want to receive your home, you will avoid probate. As I’ve said about some other things on this podcast, however, “if” is doing an awful lot of work in that statement. The truth is that TODIs have their place and another truth is that I really don’t like them.
Working as an estate-planning attorney who deals not just with death planning but also with the issues of aging, disability, and family dynamics, to think a job is done because you’ve taken care of the death questions is abhorrent.
To add to that short-sighted thinking the risk that even the death planning could go wrong if a child has creditor, marital, disability, or just general agreeableness issues when you pass away is just too big of an “if” for this attorney to feel good about.
I think anybody will get much more value out of putting something in a trust rather than leaving it out for probate or transfer on a death instrument just to handle. We will revisit transfer on death in more detail in a later episode, but for now, you need to understand that just like any other tool, you should only use them for the job they are made to complete.
So what do I think about trusts?
I think that everybody with real estate who cares more about planning for unknowns than planning on everything going perfectly will need trust.
In Illinois, for people who don’t own real estate, the question becomes do they have $100,000 of other things that don’t have beneficiaries on them? If they do, then they need trust, if not then they don’t.
Another added benefit of a trust is that it is a private document. Only you and your beneficiaries will ever have the right to see a copy of your trust and in Illinois, your beneficiaries most likely won’t have the right until after you pass away.
Conclusion
The final point I want to make about trusts is that they are like flavors of ice cream in their endless amount of varieties. It is impossible to discuss every single kind of trust but suffice it to say we can achieve pretty much any legal purpose with a trust.
Whether that’s concerns you have about tax, concerns about yourself or your spouse, or concerns about your loved ones after you’re gone, we can take care of all those concerns with trust.