Many prospects and their heirs have been inundated with so much false and half true information that they believe the creation of a living trust not only avoids a probate proceeding (going to court), but also eliminates the need to visit or pay an attorney to help settle the decedent’s estate.
An attorney is still necessary to help settle the trust as described below. The effective use of a fully funded revocable living trust should reduce the amount of work and accordingly the costs incurred, but here is a partial list of what the attorney does in every case with or without a probate proceeding.
- Counsels the successor trustee as to his or her duties and obligations, including a comprehensive review of the pertinent provisions of the trust instrument.
- Explains the necessary steps to be taken to efficiently administer the assets, including the obligations with respect to specific bequests to individuals and gifts to charities.
- Directs the preparation of an inventory and explains the practical steps to be taken insofar as disposing of items of dubious value and preserving records.
- Coordinates who among family members, friends, and professional advisors will perform which tasks in the administration of the trust estate.
- Answers those questions that inevitably arise.
- After the death of a spouse, assists the surviving spouse, by
- Explaining that the trust estate has been designed to permit the survivors to spend a reasonable amount of time grieving before jumping into the business of settling the trust administration;
- Comforting the survivor that almost everyone that tries to rush the survivors into making decisions is wrong and probably not concerned with the best interests of the survivor;
- Explaining why death certificates may be needed and why it is better to get too many the first time rather than too few;
- Being available as an unbiased advisor to give competent advice about how and when to proceed;
- Helping determine if an estate tax return is necessary or desirable;
- Determining what assets must be appraised and what type of appraisal will be necessary in light of the size and nature of the estate;
- Establishing the AB or ABC trust shares, including;
- Obtaining new tax payer identification numbers for the trust;
- Explaining the advantages and disadvantages of putting specific assets into the A or B share;
- Analyzing the nature of the trust assets and explaining why some assets belong on one side of the equation or the other;
- Making sure that the right advisors are performing the necessary tasks to meet the successor trustees obligations in a timely manner;
- Introducing the surviving spouse to a trust officer if appropriate;
- Confirming that all assets had been properly retitled prior to the decedent’s death so that no probate is necessary or initiate one economically if needed for any reason;
- Retitling assets where necessary;
- Notifying custodians and the social security administration;
- Assisting the client in setting up new accounts where appropriate and obtaining federal employer identification numbers for the new irrevocable trusts established as a matter of law at the death of the decedent;
- Helping the survivors determine if their intended tax and financial advisors have sufficient knowledge and experience to handle the unique issues that are likely to arise;
- Explaining what tax returns will be due and help the surviving spouse obtain competent tax advice and tax return preparation;
- Explaining “step up” in basis to help avoid costly inadvertent tax consequences;
- Explaining how and why the IRA spousal rollover works and helping to assure that the transfer is done correctly to avoid immediate income taxation of the entire retirement account balance;
- Reviewing with the survivor the meaning of the multiple buckets of assets and why each bucket has different characteristics that must be carefully considered on an ongoing basis;
- Discuss possible disclaimer strategies;
- Reviewing and updating if necessary financial and health care powers of attorney;
- Insuring that the survivor receives adequate and competent counsel concerning the survivor’s estate;
- Making sure the work actually occurs in a timely fashion to avoid problems later on;
- Determining if the experience with the first trust settlement gives rise to any suggestions to improve the administration of the ongoing trust and recommend changes to simplify the process for the next set of survivors;
- Reviewing the benefits that are available to the surviving spouse and the limitations that must be observed to preserve those benefits on both the federal and state levels;
- After the death of a surviving spouse or single decedent all of the above must be repeated and the affairs of the decedent wound up.
The survivors and successors can choose to use any attorney with whom they are comfortable. Although I would certainly like to be that attorney, I recognize that my relationship is usually with the decedent and the survivors and successors may already have a relationship with another attorney. I just urge caution because not all attorneys may be intimately familiar with the trust documents, the decedent’s intentions, or the process. Family attorneys, unless well versed in probate and trust practice may be better utilized by giving a recommendation with whom the survivors are more comfortable. This also applies to accountants and financial advisors. Not all accountants who prepare individual tax returns or monthly business statements also have experience with the intricacies of trust accounting rules and the preparation of the necessary fiduciary returns. Although the family should continue to use those advisors with whom they are most comfortable, most drastic mistakes are made by well meaning family lawyers or accountants who fail to comprehend the complexity of representing trust estates.
Remember, in Arizona “avoiding probate” is not a large concern. An uncontested probate process will not prolong the settlement of the estate nor will be very costly. It should add no more than $3,000.00 to the trust settlement charges you will already incur with or without a probate case. Also remember, the actually cost of trust settlement depends on many factors, including the complexity of the assets ownership, the value of the assets, and the nature of the assets. I will be happy to frankly discuss the current charges at a mutually convenient time.
Finally, a not so brief comment on alternatives to trusts in avoiding probates in Arizona. Although not always desirable, it is possible with estates of almost any size to avoid both a probate proceeding and complex trust settlement procedures using a combination of joint accounts, POD accounts, TOD accounts, rights of survivorship, beneficiary designations, and beneficiary deeds. While I commend the use of such streamlined procedures when appropriate, there remains a great deal of misinformation among trust and bank officers, escrow officers, and other professionals about when and how to effectively use each of these tools alone or in conjunction with one another. Misuse of these tools can cause serious adverse income and estate tax consequences, distributions to unintended beneficiaries, and exposure of a vulnerable adult to their children’s creditors or predatory practices. There are really safe, economical, and effective methods to accomplish almost any objective, but many more ways to misuse the methods. Exposing the assets acquired over the course of a lifetime is an extreme and unwarranted risk to take on the mistaken belief that legal fees and lawyers are evils to be avoided at all costs. If you are the child of a surviving spouse or an elderly person in need of an economical and effective estate plan, please invest the time to find out how to do it properly. This is one area where an ounce of prevention can avoid several pounds of cure. I am always happy to explain and implement the least costly and most effective method of transferring your family’s wealth. Please don’t go it alone.