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Does a Client Need a Will or a Trust? Reasons Other than Family Wealth Preservation
Posted by Martin Heller Potempa & Sheppard, PLLC on September 30, 2021
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As you probably can tell by now, much of what we do is use trusts for family wealth preservation and keep “outsiders” away. In this edition of our blog series covering trusts, we pull together reasons other than family wealth preservation, why a client might be better off with a trust as the main testamentary document than a will.
In one big way, a will and a trust are the same. They both can direct the distribution of the client’s property and assets. That being said, there are many reasons why we recommend that a client have a revocable trust, sometimes referred to as a “living trust,” as their main testamentary document rather than a will. This is especially true for married couples. Find out why having a trust as the main testamentary document can be beneficial.
1. Avoiding Probate
A revocable trust is often used to avoid probate. The property and assets held by the trust will not pass through the probate system. This means no court proceedings or involvement. No court often results in a faster administration of the decedent’s affairs, quicker distribution of the property and assets to the beneficiaries, and fewer legal fees. This is especially important for a client who has real estate property outside of his/her home state.
If the real estate property in another state is held personally by the client and not in a trust, then at the client’s death, the family may have to do an extra probate proceeding in the state the property is located. For instance, if a client lives in Tennessee and also has a condo in Florida, at the client’s death, the family will have to probate in both Tennessee and Florida.
2. Assisting When Incapacitated
A revocable trust can assist if the client becomes incapacitated, which we’ll cover more in-depth in a future blog post. A well-prepared document will include language that (1) triggers a removal of an incapacitated trustee and (2) appoints a successor trustee. As the client’s property and assets are already titled in the trust, once the successor trustee assumes his/her position, he/she automatically has full authority to direct the management and use of the trust property.
Without the trust, the incapacitated client needs to have a Durable Power of Attorney (“DPOA”) or, without the DPOA, will need a judicial competency processing called conservatorship.
Even with a DPOA, some financial organizations will start to get fussy about honoring them. We had one organization tell us that it will only acknowledge the authority of a DPOA if it is the financial group’s own document specific to the account. That is not very helpful.
We had another financial organization tell us that it will only respect a DPOA if it is certified as still active every 60 days. They wanted the appointed Power Person (so to speak) to submit to them a sworn statement every 60 days that the client had not revoked the DPOA. We told the financial group that the client was incapacitated, which is what activated the Power Person’s authority and thus is incapable of revoking the DPOA. Our argument fell on deaf ears – they required the sworn statement. Interestingly, at the end of this ordeal, the financial group said to us something like, “You know, if the incapacitated client had a trust, and the account was in the trust, then all we would need is the page from the trust naming the successor Trustee.”
When the client uses a trust, you can avoid all of these problems.
3. Privacy of Plan and Family Wealth
The probate process requires the client’s will to be filed with the local county court. Doing so makes the document a public record. This means that anyone can come and see what the will says – things like who is in charge, and how and to whom the wealth is distributed. Sometimes an itemized list of the family wealth, with amounts and values, is filed with the court. Having these documents in the public domain was not much of a problem twenty years ago. But with the internet, most clients do not want information about their testamentary decisions and a list of the family wealth to be available for public inspection.
Because a trust does not go through the probate process, nothing is filed with the court to become a public document. The document and inventory of trust assets all stay private.
Start Setting Up Your Trust Today
As you can see, there are many great reasons to establish a trust as a part of your estate planning. At Martin Heller Potempa & Sheppard, we understand the value that trusts can have for our clients and can help you set one up that can help make things easier for yourself and your loved ones in the future. Our Nashville trust attorneys can help you with anything you need if you’re considering starting a trust.
Contact us today to learn more about establishing a trust.
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