Basic Estate Planning

Wills & Probate

It is easy to change the distribution of assets from the default intestacy laws. It’s called a will (or Last Will & Testament to be more accurate). Wills have been around since Roman times (Julius Caesar adopted Octavian Caesar, later known as Augustus Caesar, in his will, in fact). It reflects our society’s natural desire to respect the wishes of the deceased.

Each state has its own variation on what is required for a valid will. There is actually very little formality to a will. Usually, the signing of the will must be witnessed by two unrelated individuals. The purpose of the witnesses is to ensure that the person making the will (known as the “Testator”) made the will voluntarily and not at the point of a gun. After all, the Testator cannot testify as to how they signed the will (being dead and all), so the witnesses do the testifying.

Because there is very little formality to a will, the law subjects a will through a court proceeding called probate. The purpose of the probate proceeding is to prove the validity of the will, appoint a representative of the estate, usually called the “executor” or “personal representative,” satisfy valid creditors and claims, and carry out the distributions of estate property to the heirs. Each step requires some level of court procedure and formality. The process can take months or even years, and depending upon the state and the complexity, probate can be very expensive in both court fees and attorney fees. In some states, 18% of the entire estate is considered a reasonable probate attorney fee.

A very simple way to avoid these fees and the difficulty of probate is to simply set up a trust.

while one that has limitations on being changed is called “irrevocable.” Usually, most trusts are revocable unless there is a specific reason for making it irrevocable.

A trust is separate from its trustees and beneficiaries just like the corporation is separate from its president and its shareholders. For example, if a person own Microsoft stock or if even if they run the company, that person isn’t Microsoft. Likewise, if a person is the beneficiary or trustee of the trust, that person isn’t the trust; they merely carry a title with some level of authority.

A trust is formed by signing a trust agreement between the grantor and the trustee. The document is not filed with the state, or with any agency at all. The trust agreement spells out the authority granted to the trustee as well as the limitations. Banks, financial institutions, and government agencies rely on the trust agreement itself, and will review a copy of the trust, to verify that the trust actually exists.