Which one should I choose: a Will document or a Living Trust?
- About a Will document and probate
- About Conservatorship, a Brief Discussion
- About Federal Estate and Gift Taxes, a Brief Discussion
- About Living Trust or Declaration of Trust, Discussion and Information
About a Will document and probate
Generally, a Will is subject to the Uniform Probate Code, and consequently, to the local Probate Court in the county of residence of the property owner located therein.
A Living Trust in general avoids probate and is not subject to the stringent Uniform Probate Code, and is therefore exempt from probate process. Anyone can read about all of the foregoing subjects and more on the internet on a typical State Code Annotated general definitions at http://data.opi.state.mt.us/BILLS/mca/72/1/72-1-103.htm. Notice further how subsection 53 defines the term Trust and Trustee all in line with Prof. of law emeritus George Gleason Bogert treatise on the Law of Trusts!
"Trust" includes an express trust, private or charitable, with additions to the trust, wherever and however created. The term also includes a trust created or determined by judgment or decree under which the trust is to be administered in the manner of an express trust. The term excludes other constructive trusts and excludes resulting trusts; conservatorships; personal representatives; trust accounts as defined in 72-6-111 and Title 72, chapter 6, parts 2 and 3; custodial arrangements pursuant to chapter 26; business trusts providing for certificates to be issued to beneficiaries; common trust funds; voting trusts; security arrangements; liquidation trusts; trusts for the primary purpose of paying debts, dividends, interest, salaries, wages, profits, pensions, or employee benefits of any kind; and any arrangement under which a person is nominee or escrowee for another.
"Trustee" includes an original, additional, or successor trustee, whether or not appointed or confirmed by court.
"Will" includes codicil and any testamentary instrument that merely appoints an executor, revokes or revises another will, nominates a guardian, or expressly excludes or limits the right of an individual or class to succeed to property of the decedent passing by intestate succession.
There are so many people in USA who pass away without having signed and executed a simple Will, let alone a Living Trust document and its process entailed thereto. Technically, in law, it is said that they died intestate (without a "Will"). This term intestate comes from the Latin word intestatus and it is translated as having made no Will. For these people and their heirs in this category of intestates, the situation is not a pretty one, because the State of their residence at death will have to deal with their property and transfers to heirs, with high costs involved and thus the problem is aggravated by the absence of a Will document at the time of their passing away. Of course, the respective State would be happy to probate these people's estates but the fees involved are not that few and small! Their estate settlement cost funnel, so called by some fox, has in view the following:
- their business interests as for example in the probate cases of Marilyn Monroe or DHL's founder Larry Hillblom although he died having a decade-old Will not exactly as intestate.
- their Real Estate interests as for example in the probate case of American famous ABC News anchorman Peter Jennings in a Probate Court in New York or that probate court case of oil tycoon J. Howard Marshall whose young, stunning model wife, Anna Nicole Smith seeked, via U.S. Supreme Court approval, more wealth from her husband's estate to the detriment of Marshall's heir son.
- their Personal Property as for example in the case of a very famous American diplomat and former ambassador to France, Pamela Harriman, see her story reported in Newsweek magazine of June 2, 1997, page 77; or, for contrast, take for example the famous Appellate (9th Circuit Ct) case of J. Paul Getty and see his son's story in the Federal appellate case Jean Ronald Getty vs. Commissioner of IRS, 913 F. 2d 1486 (1990); or, see for example, these U.S. Supreme Court cases: Halvering vs. Hallock, 309 US 106; Halvering vs. Clifford, 309 US 331; and Halvering vs. St. Louis Union Trust Co., 296 US 39 (1935), almost all dealing with Trusts and Powers of Trustees; and, of course, the "coveted"...
- Life Insurance,
- Securities such as Bonds, Stock Certificates, Notes and the like.
The probate court's so called settlement cost funnel will draw the list as following:
- Real Estate sales fee
- Probate taxes
- Securities sales
- Excise tax and inventory fee
- Auction expenses
- Property taxes
- Capital gains taxes,
- Income taxes
- Estate Appraisal fees
- Probate court fees
- Attorneys Fees and if one has 2 probate lawyers the fees will be jumbo.
- Inheritance taxes
- Estate taxes and lots of them.
- Administrative fees
- Accounting fees
- Executor fees
- Conservator fees
- Guardian fees if deceased has minors.
- Funeral expenses
- Medical expenses
- The Trustee (appointed by probate court) fees
- Federal gift taxes
- Storage expenses
- Recording fees
- and of course other miscellaneous fees which are unpredictable, that always seem to emerge in the final hours of the probate process of the deceased.
Sometime ago, the probate system in America was established as one orderly way of transferring the property of the deceased citizen to his/her inheritors. The probate system was designed to protect the inheritors of the deceased citizen! As we have observed in many famous probate cases, some running in the media such as those of Marilyn Monroe, Pamela Harriman, Larry Hillblom and others alike, the public perception has shifted over time, because it was reported and still continues to be reported in the media that it is a legal nightmare to be a part of the inheritors' bench versus the "official bench" due to so many perceived improprieties that appear to harm the interests of inheritors rather than protect them. A specialised firm on the internet reports some of the foregoing "perceived" abuses so dramatic that defies the legal restraints of the laws. Read their report at: http://www.lectlaw.com/files/est05.htm. Here, they report, read carefully please, that a deceased American man named Robert Sterling Clark (clearly a probate court case) incurred costs as follows:
- Costs of administering his estate: $856,747.00
- Costs as to the Executor of the estate: $2,965,683.00
- Costs as to the probate attorney: $1,065,530.00
Well, when someone reads these kind of knee-jerking stories about the probate process, it is no wonder that the staggering numbers of real estate owners holding property in their name, but not in Trust, continue to remain unchanged at the local County Recorder of Deeds in their indexes. With the baby-boomers generation advent of receiving trillions of dollars worth of real property from their parents presumably via Wills or some via intestates, soon to take place, we shall see more and more of these famous cases running in the media such as those cited above. The question still remains as to whether the baby boomers generation have taken to heart what happened in the probate to other people before them so that they will not become the next story as those of Marilyn Monroe and Larry Hillblom! It will be very interesting to observe this historically unprecedented transfer of wealth worth trillions of dollars of real estate property coming soon on the public dockets of all the States in America, including Hawaii!
To be sure, the probate process is necessary whenever the deceased's signature is required to transfer the Deed instrument to the property, or the stock certificates, or the checking/savings accounts to the intended legal beneficiaries or inheritors. Without the probate, the problems of the deceased and his/her need for signature on the aforesaid documents would not be solved in an equitable way. Thus, to avoid being potentially exposed to the problems inherent in the probate process, especially the heirs, the question arises whether another type of laws such as the Trust laws for example, may be the solution to so many millions of people in America, most definitely to the baby boomers generation and their inheritors or even the boomers' parents if still alive. We will explore this subject some more in our following informative exposition pages. But, before we do that, some things must be said about conservatorship, that not many fox dare to think about now.
About Conservatorship, a Brief Discussion
Many people in America are being placed under conservatorship authority, due to their physical or mental limitations. Like probate process, conservatorship is caused by the need for a person's signature, when due to physical or mental limitations that (their) signature can not be obtained for transfer of property, for example.
A conservatorship happens during an individual's lifetime, and is generally imposed by a court of law. With regard to who will be the "conservator", the court looks to the spouse (if married). For those single fox, widows or widower, the decision rests with the court. Due to the expenses involved in a conservatorship, publicity and delays associated with such a process, and the question of who will a judge choose to be a (incompetent) person's "conservator", the solution to this kind of hardship is without question the creation of a Living Trust. This would allow avoidance of the court imposed conservatorship, and also will allow you to choose the person you would like to manage your property (assets, etc) whenever you cannot do so. In short, conservatorship is similar to probate. The difference is that conservatorship occurs during an individual's lifetime, but the probate occurs while an individual is dead and gone. Thus, the conservatorship process will solve the problem of obtaining a (impaired) person's signature for transfer documents when the person's signature is not available, or as such legally invalid due to the person's physical or mental incapacitations or limitations. Some people use a power of attorney in their judgment to avoid conservatorship. The only effective such instrument would be the Durable Power of Attorney, because all other power of attorneys become innefective at the time of death of the principal, or after his/her incompetency. In summary, the Living Trust will solve most of these problems that are associated with conservatorship and probate respectively. Surely, one can find more about conservatorship and its disadvantages on the internet.
Creating a Living Trust now, it may spare you and your family from the miriad of problems that one will face during conservatorship or the probate process.
The creation of a Revocable Living Trust (aka Declaration of Trust or inter vivo Trust) following the Law of Trusts as written long ago by Prof. of law George Bogert, combined with other legal features or powers of the Uniform Trustees' Powers Act, and the latest Uniform Trust Code, together with some important federal rights incorporated in the Trust text, this will provide avoidance of probate and conservatorship.
Moreover, your inheritors/heirs will be very happy that you spared them from the complicated probate and conservatorship process.
About Federal Estate and Gift Taxes, a Brief Discussion
There are certain Rules in the federal tax system which are strictly observed in connection with the issues of Federal Estate and Gift taxation.
The Rule: During life, a donor of money like a parent, for example, can donate money to his/her child the sum of $10,000.00 per year, per person (child) so donated as a gift-tax free. (
The Rule: At death, a deceased's real estate property valued to approx. (currently fixed at) $1,200,00) can pass to the his/her beneficiaries tax free
Thetabiz Corporation has competent and experienced Tax lawyers who can address these tax issues more accurately. Such legal Counsel is available upon inquiry about specific federal tax issues in all of the federal jurisdiction with regard to taxpayers clients.
Rules Exceptions: During life and at death of a spouse, unlimited amount may be transferred to a U.S. Citizen spouse tax free and an unlimited amount may be transferred to a "qualified" (by IRS) charitable organization.
Note: Again, more accurate professional U.S. tax advisement would be available, as stated above, in all U.S. territory, on specific questions or work. Contact Thetabiz Corporation for more informations.
The Rule on Capital Gain Tax: Selling appreciated assets would trigger an income tax levied upon the gains so realised thereon. Any selling of an investment that has increased well above its original value can trigger a capital gain tax; but it is more problematic when such a potential tax levy would descourage a surviving spouse from liquidating or selling his/her real estate property!
Again, for more accurate federal tax advise or professional filing work for clients of this website, we suggest that you avail yourself of such professional with any federal tax issues or work by contacting Thetabiz Corporation.
The Rule on Penalties: If more than $10,000.00 is being transferred to someone other than a spouse, as stated above, a gift tax must be filed with the IRS's office at income tax return time for the specific year in cause. If the estate amount is in excess of $1,200,00.00 at death, and has not been transferred to the spouse, or charitable entity, the amount of over $1,200,000.00 would be subject to the estate tax laws at a ratio beginning at 37% & going as high as 55%!
Example: if the estate is worth $1,200,000.00, the federal estate tax would be approx. $230,000.00! In short, the creation of a Living Trust is a good solution to overcome most of the economical obstacles and disadvantages that were identified above.
For example, in a Living Trust scenario, a married couple (U.S. citizens) would have a jumbo savings of a little over $300,000.00 (but not $230,000.00 estate tax as shown above), instead of federal estate tax as alluded to above. A married person's Living Trust is capable of transferring all of their marital real estate property to their intended and bona fide beneficiaries chosen in their (express) living Trust.
About Living Trust or Declaration of Trust, Discussion and Information
Brief Information and history of Trusts.
In England, some parts of the Law of Trusts has been codified in the "Trustee Act" (15 Geo.V, Ch. 19, 1925) and the "Charitable Trusts Act" (15 &16 Geo V, Ch. 27, 1925). Most of the principles of Trust law in England is stated in their judicial decisions. In the United States, about the year 1935, a little over 2 years after the anti-monopolies laws were enacted, namely the "Sherman Act", Title 15 of the U.S. Code, Sec. 1 and then the "Clayton Act", 15 USC, the American Law Institute published an authoritative body of law on the Trust subject entitled Restatement of the Law of Trusts which is cited generously by all of our State and Federal courts, including the U.S. Supreme Court. The emeritus Professor of Law George Bogert also cites the Restatement of the Law of Trusts in his Law of Trusts treatise of which I alluded to before. At a later time, some 30 years later on in 1964, in America a special Commision was established, sort of a quasi federal type of institution, which still functions today, to deal with this Trust law subject. They meet and discuss improvements of the Trust law and publish their enactments about certain Trust law codifications, uniformizations, and or repealings, and other such things. The commission is named National Conference of Commissioners of Uniform State Laws (NCCUSL). Their place of business is in the State of Illinois (USA). In 1964, they enacted the famous Uniform Trustees' Powers Act (UTPA), and the Uniform Trust Act (UTA-, which are incorporated in the Trust text that Thetabiz Corporation suggested lawyer will provide to our clients. Their latest enactment is The Uniform Trust Code (UTC) which seeks to weave in some portions of the preceding Act (UTPA). This is a very impressive and authoritative, quasi federal, body of law as one can observe from its member composition. Most of the UTC is primarily a default statute, so says its own text at Article 1.
Some definitions of the "living Trust" concept.
The term "living Trust" is a popular name for "Family Trust", "Inter Vivo Trust", "Revocable Trust", and "Express Trust"--these mean the same thing. More technically, the term "living Trust" would be compatible with the "express Trust" (the one which I and many Federal Courts authorities follow closely from "Restatement of the Law of Trusts" and Prof. George G. Bogert's treatise). The "living Trust" or "express Trust" arises because an individual owner of real property has the power and right to create it (the express Trust, or living Trust), and he/she expresses the intent to create the Trust, and then goes through the required formalities (as the "Restatement of the law of Trusts" describes) to actually create an express Trust or living Trust. Some experts in this field of law, define it this way, that a "living Trust" is a legal entity that is created by the owner of a real (estate) property (who has the right and power to create it) to own, manage and to distribute (such) property assets (obviously in accordance with the terms in the Trust document)--more precisely--in accordance with the owner or the creator of Trust's express desire. Obviously, his/her desire must be clearly "evidenced" in the text of the Trust document.
Creation of "express Trust" or "living Trust" (by "Declaration of Trust").
In order to create a Living Trust or express Trust, the creator of such Trust must own the real (estate) property of the intended Trust either entirely or partially. If he/she owns it partially, that part is called equitable interest or ownership, and therefore it would be attachable to his/her Declaration of Trust document(s) process, thus creating the express or living Trust entity.
The Declaration of Trust by the Trust creator must steer clear of any Federal liens or processes pending thereto, like IRS liens and pending lien processes for example or any other attachments recorded with the County Recorder of Deeds before the execution of the document(s). This aspect is very important, and failure to steer clear from such liens recorded would invalidate the Trust. Thus, a Living Trust of necessity and in compliance with certain rules established in the American legal system, must generally arise through a specified written document as alluded to above.
Moreover, the owner of a real (estate) property expressing the intent in writting to create his/her Trust must make the required official transfer(s) of his/her property via the declaration document and the appropriate Deed of transfer (usually a QCD will do) to the Trust so created. He/she now becomes a Trustee declared so by the official notarized instrument, and as such, he/she now describes the real (estate) property that would be the subject of the Trust in such document (QCD) and thus, he/she it said that manages the property so transferred into the Trust for the benefit of his/her heirs or beneficiaries of the Trust) of course, including the creator(s) of the Trust. The term Trustee is therefore applied to the person or persons (or creator(s) of Trust, for example) who manage the Trust in accordance with the written terms/provisions in the Trust document. The alternate Trustee(s) who are designated in the Trust, and adults, normally children of the creator or Trustor of Trust, would serve as Trustees in the event of the incompetency or death of the creator of Trust. These persons are also called beneficiaries of the Trust, or more precisely the persons expressly designated so to receive the income and the principal (sums, property) of the Trust either during the life of creator or upon his/her death. Thus, all property of the creator of Trust must be in Trust (listed in the Trust's Schedule sheets), and also beforehand pass into the Trust formally via official recordation of the Title of such property with the local County Recorder of Deeds in the name of the Trustee(s) or the Trust. Failure to do so may trigger a probate process on the property found outside the Trust upon the death of the creator (or settlor/Trustor).
Power and Rights of the Creator of express Trust.
It is interesting how the eminent Professor of law George G. Bogert describes the right and power of every property owner to create a living Trust and dispose of such Trust property: "In general, every person competent to make a Will, enter into a Contract, or hold the legal Title to and manage property, may dispose of it as he chooses, and sui juris, has the power to create a Trust, and dispose of his property in that way". He further states that: "If one may legally convey his property absolutely, he may convey it upon Trust, or declare himself to hold it upon Trust" (see, Bogert on Trusts, Hornbook Series, 3rd Edition, ch. 1, p. 21, Handbook of the Law of Trusts, Introduction and history). The emeritus professor also states that: "A Trust may be defined as a property right held by one party for the use of another", and that "he himself (the Trust owner) can be one of the beneficiaries of the Trust" (Bogert, p. 1 ). Thus the Trustee(s) hold(s) the Trust property for the benefit of the beneficiary or heirs. His/her obligation under the Trust's terms is said to be equitable.
Beneficiary and Subject Matter of the Living Trust
It is very important that the Living Trust or express Trust property, and also the beneficiary of the Trust, must be described or identified with certainty. The Settlor's (or creator's) intent must be therefore expressed in writting and not merely in his/her mind (Bogert on Trusts, "Handbook of the Law of Trusts" p. 24). Thus, all of the foregoing requisites and formalities must be checked out in order to have a Trust text which overcomes potential defects and confusion.
For example, in order that the Trust owns certain real (estate) property, the Deed document of such property must be changed so as to represent Trust ownership. This is done by the Creator of Trust (Settlor) at the time he/she causes the Trust to arise (in writting). Any savings accounts, checking accounts, Certificates of Deposit, Bonds, Stocks and alike securities (as defined by Securities law) must be transferred to the Trust by the Creator/Settlor of the Trust in order to avoid the triggering of a potential unwanted probate! A very important element of the funding of Trust constitute the transfer of the Creator's assets to the Trust he/she creates in writting. The Creator of the Trust, if he/she is famous for example, must prepare a schedule list of the famous personal property and make it a part of the Living Trust that he/she creates. Even the regular fox should do this. In the event that a court may be called upon to decide certain matters dealing with a Trust, usually the courts follow closely the doctrine of cy-press according to an equittable doctrine so named, applied to the interpretation of wills or trusts as nearly as possible to the intent of the testator or the settlor, respectively. Therefore, every Trust must have some property as its subject-matter, and the beneficiary must be clearly identified. The Trust property must be described with certainty and the Trustee(s) must be clearly designated in order to overcome defects and confusion. The Trustee's obligation must be to apply defined or ascertainable property to the benefit of another (see, Bogert on Trusts, 3rd edition, p. 85). This eminent professor states that: "The Trust property must be some interest recognized by equity as capable of ownership and as transferrable" (Bogert, p. 85).
Other matters to be considered.
The Trust law in the United States has been discussed in the official proceedings of Courts, by highly skilled judges of such federal and State courts; by eminent Law professors, such as George Gleason Bogert; and, Scott on Trusts, Wills and Estates, Ch. 7, 4th Edition bu Jesse Dukeminier and Stanley M. Johanson, and of course many others.
Moreover, the Federal Rules of Civil Procedures, 11 & 17 of the Federal Courts of the United States as well as the laws of various States, enable a Trustee to appear before any Federal judiciary tribunal and litigate or defend the Trust.
Federal Judicial Code Title 28 USC, Sec. 1654, also would enable a (person) Trustee to appear and defend the Trust. If the Trustee did not involve trust property in any business or private transaction, then the courts usually dismiss any frivolous attempts to maintain a Court action against such a good and responsible Trustee of Trust. On the other hand, if the Trustee acts on behalf of the Trust and involves Trust property in any business or private transaction, the Trust becomes liable if the Trustee has done some wrongs and consequently the liability would accrue against the Trust (as in the Pamela Harriman case, for example).
However, as we have observed in this discussion, the Trust laws clearly indicate that equitable interests of people could be held in Trust for the benefit of children (see, Restatement of Trusts, Sec. 83, p.143) cites Professor Austin W. Scott of Harvard Law School (The Law of Trusts, Third Edition, by Prof. Law Emeritus Austin W. Scott). The law also indicates that a person's equitable interest could be held in Trust, not only for the benefit of children (beneficiaries), but also for the benefit of the creator/settlor, per se; and if the creator/settlor is childless or has no living relatives, he/she may designate another.
Many of the rights and powers of the Trustee(s) have been codified in the Uniform Trustees' Powers Act (UTPA), adopted by most States. The recent Uniform Trust Code legislation maintains all of the rights and powers of Trustee(s) as in the UTPA, for example.
The express Trust or Living Trust may be categorized as revocable and irrevocable. Both are available upon request and further communication with the Thetabiz Corporation.
Contact form
Please complete this contact form.
