January 8, 2014
by Michelle Perry Higgins
Trusts are an essential part of estate planning, but many people make a mistake that essentially vitiates the purpose of establishing the trust in the first place. The trust specifies who manages trust assets, what their powers are, and how the assets will be disposed of. These aspects of a trust correspond in large part to similar aspects of a will. The trust has a trustee, the will has an executor. The trust specifies what to do with assets, as does a will. However, a major difference between a trust and a will is that a trust disposes of assets outside of probate.
Probate is a formal procedure under the administration of a court that marshals the assets of the decedent, pays creditors and others, and disposes of the assets of the estate according to the decedent’s will. The probate procedure involves, at the very least, an executor, an attorney, an appraiser, and filing fees paid to the court. All of these expenses must be paid before the heirs can receive their disposition under the will, and these expenses can add up to a considerable portion of the estate.
By using a trust, the trustor (the person who transfers the assets going into the trust), can avoid these expenses to a considerable extent. The trust, however, is not self-executing. This means the trustor must act to put assets into the trust, and this requirement is sometimes the source of the mistake that too many people make. Sometimes assets that should go into the trust are forgotten or the trustor thinks the attorney is responsible for transferring the assets. Things slip through the cracks and when the trustor passes, assets that should have been disposed of outside of probate become entangled in that complicated and costly procedure to the detriment of everyone except the attorneys. One way to keep this from happening is to maintain good records in an organizer so that assets intended for the trust are listed and easy to find.