I take a lot of calls concerning trusts where people ask me how a trust can save them money. Many of these callers have the mistaken belief that trusts are a magical way to avoid paying taxes and that they can completely eliminate taxes by using a trust. As much as I would like for that to be the case, it simply is not. Taxes do not simply go away because you put your assets into a trust. While there may be some types of tax sheltering trusts, or ways to structure a trust to minimize taxes, there is no magic tax eliminating trust. (On the contrary, income to a trust is taxed at a higher rate more quickly than to an individual. So, setting up a trust just to avoid taxes is probably not the greatest strategy.)
There are many ways that a trust can save you time and money, it is just not eliminating all taxes. A trust can save you time (and possibly money) by not needing to go through the probate court and the probate process. Since a trust is a private document, you may not need an attorney to help your survivors go through the process of administering a trust when you pass away – again saving you time and money. You can do a lot of the work yourself on the front end, which saves time and money after you die. The entire process of getting assets to your survivors when you die is streamlined, so you are not burdening your survivors with cumbersome legal processes and time consuming legal proceedings. A trust just makes the whole process simpler when you pass away.
A Trust Can Avoid the Probate Process
The probate process is the legal process of getting assets from a deceased individual to the named beneficiaries or heirs in a will. Wills go through the probate process. A will guides the probate process, as the will dictates who will receive the assets, but the probate process does involve the courts. The named personal representative needs to take the will to the probate court, along with the necessary probate application paperwork and other required forms for opening a probate case. These forms include one where the court will grant the personal representative legal permission to deal with the assets of the deceased person. The necessary probate forms can be found online in Colorado, including instructions for what needs to be filed for probate. However, if any complications come up in the probate process, the instructions don’t always account for every potential hiccup or complication. Most probate cases are simple enough for people to handle on their own, but anything complicated can become an issue, and if a personal representative makes a mistake, it can be time consuming and costly to hire an attorney to correct a mistake in probate.
A trust is a private document that distributes assets without the need for court involvement. The written trust agreement itself lays out what needs to happen to assets and who should receive the assets. These instructions can be carried out privately, without the need to fill out the court’s forms and follow the more formal procedures involved in dealing with a probate court. The trust gives more freedom to the named successor trustee to carry out the distributions described in a trust, so the successor trustee can have more latitude to carry out the instructions, instead of following the formal requirements of a probate court, so that can save time, and also save money by not needing to hire an attorney to handle probate if something becomes more complicated in probate.
Trusts Clearly Describe What Happens to Assets, So Your Survivors May Not Need an Attorney
In most cases, probate is simple enough that you should be able to handle a probate case without an attorney, but some people are intimidated by the necessary paperwork, don’t want to spend the time dealing with the court, or just don’t want to go through all of the steps to do probate properly. In these types of cases, someone may need to hire an attorney to handle the probate process. At the risk of stating the obvious, attorneys can be expensive. My friends who handle probate cases usually want a $5,000 to $6,000 retainer to start and charge $300 – $500 per hour for their work. My friends tell me that they usually end up charging $10,000 – $15,000 to handle a probate case from start to finish, just because of the time involved.
A typical revocable trust I write usually costs between $2,000 and $3,000, so setting up a trust can be about half the cost of hiring an attorney to handle a probate case for you. Of course, nobody is required to hire an attorney for probate, so the cost savings may not truly materialize, but a trust can certainly be a less expensive way to go. A trust agreement can clearly lay out who gets assets and the terms and conditions of getting assets to the named beneficiary. In my experience, my client’s survivors are almost always able to carry out the instructions of a trust without needing my help, or the help of a different attorney, which saves money for the survivors.
Administering a trust is not without a time commitment, to be sure, but the necessary time can be greatly reduced. Most think you can hand the bank a piece of paper–the trust or a will–and they will transfer all accounts over to you. This is untrue. You can’t just walk in and walk out. With a trust you have the ability to go through the process of getting accounts transferred to you without court involvement or court permission to access the accounts, so you are no longer dependent on the courts and the courts’ timeline, but you can access the accounts on your own time frame.
You Set Up Your Own Trust While You Are Alive
A revocable trust is something you can set up while you are alive, so that you can know where and how to access all of your accounts, and you can do a lot of the work on the front end. That way, you are in charge of putting assets into the trust, making sure your assets are all covered by the trust, and you know what the trust will say happens to your assets when you pass away. By doing a lot of the work yourself on the front end, you can be much more efficient at contacting the companies that hold your assets and getting the assets set up as part of the trust. You are the expert on your life, and you know what assets you have and how to access the assets to ensure they are owned by the trust or set up to go into the trust at your death. By doing this work yourself prior to your death, you can save your survivors a great deal of time trying to track down your assets after your death. The time savings is huge for your survivors and can save money by not making your survivors pay someone to track down assets.
Trusts Can Streamline the Process All Along the Way
Most people wouldn’t necessarily pay someone to track down assets, but if they need to track down assets through the probate process, or without knowing what assets are out there, the process takes a lot of time and effort. Probate typically is a 6 – 18 month process in Colorado, and whomever is in charge will need to spend time away from work and their own lives handling the probate process. Most people have their own lives to live and things to do. They have their own work, their own families to attend to, and plenty of things to do in their own lives. The probate process can be intrusive. Setting up a trust can streamline all of that.
Instead of needing to meet the probate court timeframes and deadlines, the person carrying out the instructions in a trust – called a successor trustee – can work on their own timeline. Certainly the successor trustee doesn’t want to unnecessarily delay distributions and anger the beneficiaries who await the property or money being distributed to them, but the trust just makes life easier on the successor trustee, saving time, money, stress, and averall aggravation.
Set Up Your Trust the Right Way
There are lots of different ways to set up a trust to save you and your survivors time and money. Working with an experienced estate planning attorney to pick the right trust is the best way to create the right type of trust for you. If you would like to talk to an experienced estate planning attorney because you feel that a trust would be helpful to you, please use the link below to make an appointment.