Making sure your assets are titled correctly can make a world of difference for your heirs. By creating revocable (living) trusts and then funding those trusts, you can avoid probate. We’ve had clients ask why we make such a big deal of probate and retitling as some think retitling can be a hassle and cost money. Well, here’s the gist:
Why is probate so bad?
You don’t want probate. Period. It’s expensive, time-consuming, and public. And because it’s public, you give creditors and others – even outside family members like the “dreaded Aunt Sally” (not all families have it but some do!) – a means to get involved where they shouldn’t be. Here’s a quick read on Problems with Probate.
Okay, so probate should be avoided but can’t retitling assets be a hassle and cost money?
Retitling assets can be relatively simple and inexpensive when working with the right people. As an advisor, we regularly retitle brokerage accounts for our clients. It usually takes a digital signature and that’s about it.
Real Estate property will require a quitclaim deed to put the property into trust. Some attorneys charge only a few hundred dollars to do this and then there’s the county charge, which is usually less than $100. That’s it. So you can pay a few hundred dollars now vs what could be thousands later for attorneys to handle the probate. And a quitclaim deed is something simple to do, and only requires a notarized signature on your part.
I’m worried about estate taxes. Can trusts and retitling help with that?
Yes, the use of trusts correctly can help you reduce or eliminate estate taxes by using both spouses’ estate tax exemptions which will not happen for a standard “sweetheart will”. Currently, the federal figure is $11.58MM per individual but if there’s a change in the White House this November, that figure could be reduced drastically or repealed. See our recent blog on this. Further, most states don’t assess an estate tax, but unfortunately Illinois does, with an estate tax exemption at $4,000,000! By balancing out your estate via a couple’s two trusts, you can maximize the use of the tax exemption.
In conclusion, establishing a revocable trust and retitling assets in a way to avoid probate and/or possibly save tons of money in future estate taxes is possible with good planning. Sometimes a Transfer on Death (“TOD”) designation on a Joint or individual account can get the job done without the need for a trust; but trusts will typically be recommended for real estate, particularly out-of-state real estate. Having a good team of experts like a wealth manager and estate planning attorney can really help get it done. It may take a little time and a perhaps a little money now, but that’s a great trade-off versus the significant hassle and possibly significant dollars via tax or probate down the road.