No Estate Plan Is Right for Everyone

The phrase "one size fits all" may apply to bathrobes, but not to estate plans. There are simpler and less expensive options that may prove just as beneficial as a trust.

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One can scarcely read the newspaper or turn on the TV or radio without being exposed to advertisements or seminar invitations trumpeting the benefits of a revocable living trust.

The advertised message is clear: A trust is a necessary component of all estate plans, and if you don't have a trust, financial catastrophe will strike after you die ... if not before.

The truth is that, while revocable living trusts offer many benefits, especially to individuals with substantial assets, they are not the be-all and end-all of estate planning. "One size fits all" may apply to bathrobes, but not to estate plans. There are simpler, cheaper options that may prove just as beneficial as a trust.

Before you settle on any estate planning strategy, you should be aware of the relative merits of all three basic estate planning devices:

• joint tenancy

• a simple will

• a revocable living trust.

It is virtually impossible to weigh these options without considering how each fits your own particular situation: your age, marital status and family status; the size and diversity of your estate; your present and future income potential; and your preferences regarding privacy, assumption of risk, and paying now versus paying later.

A competent estate planning attorney can explain how factors such as these can affect the results and protections available from the various estate planning options (a consultation to discuss your choices need not be lengthy or expensive). For the purposes of this very general discussion, though, certain basic points can be made about each.

Joint Tenancy

Often called the "poor man's estate plan," joint tenancy is inexpensive to create and is very effective in avoiding probate.

However, there are risks that make its use inappropriate in most situations, other than between spouses. For example, if a parent places a child's name as joint tenant on a bank account, that child has full access to the parent's funds, and the child's creditors may make claims against the parent's account.

If a parent owns real property in joint tenancy with a child, the child has what amounts to veto power on any sale, since all joint tenants must sign sale documents. Also, if a parent has more than one child, but only one child is named as a joint tenant with the parent, the parent's death might bring about a dispute between the children or result in a distribution of assets never intended by the parent.

Simple Will

Advantages of a simple will include minimal initial cost, the security of court supervision in the probate process, and the ease and flexibility of changing the will.

On the minus side, if the value of a decedent's net assets exceeds $75,000 in personal property or $100,000 in net real property, Arizona law (as updated in 2013) requires the estate to be probated. In probate, asset distribution may be delayed for 120 days or more while creditors' claims are resolved, private matters become public, and the decedent's estate incurs legal expenses, which vary with the size and nature of the assets probated.

Trust

On the other hand, assets that are placed in a trust are not subject to probate. This reduces legal fees and eliminates court costs incurred after the death of the trustor.

A trust also provides for relatively smooth administration of the trust's assets after the trustor's death, and it avoids the need for a court-appointed guardian in case of incapacity.

Trust administration is fairly simple, although changes in circumstances may require the periodic but relatively inexpensive assistance of an attorney. Also, trusts are especially appropriate if the trustor owns real property in more than one state, since estate administration in the courts of two or more states is expensive and burdensome.

The negative aspects of a trust include the cost of establishing it. In contrast to a will, which offers low initial costs and defers other costs to the time that the will is probated, the expense of a trust is incurred when it is created. Additionally, some find it inconvenient or burdensome to transact their affairs through the trust once it has been established and assets conveyed into it. Further, trusts are often falsely touted as a tax-savings device. While proper use of a trust can minimize estate taxes by ensuring maximum advantage of the unified tax credit and marital deduction, a properly drafted will can accomplish the same purpose.

Conclusion

This discussion is by no means intended to cause confusion as you consider the proper estate planning strategy. Rather, we wish to emphasize that no single option is appropriate in all cases, and the one you select should reflect your values, priorities and goals. Beware of any sales pitch that suggests otherwise.

If you have a question on this topic that can be answered in a brief conversation, call us (480-985-4445) for a free 5-minute phone call with a Taylor Skinner attorney.