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Wills, Trust, and Probate


What Are the Legal Requirements of a Will

There are very few legal requirements for wills. To make a will in any U.S. state, you must:

  • Know what property you have and what it means to leave it to someone after your death. Legally, this is called having "capacity" and it is also known as being “of sound mind.”

  • Create a document that names beneficiaries for at least some of your property.

  • Sign the document.

  • Have the document signed by two witnesses.

No state requires your will to be notarized, although you may use a notarized self-proving affidavit that will make your will easier to get through probate after your death.

A few states allow you to make a handwritten “holographic” wills, that don’t have to be signed by witnessed. However, handwritten wills should only be used when you do not have time to make a formal will because they are much more susceptible to challenge after your death.

How to Write a Will

There are no magic words that must be used to create a will. The best advice for writing your own will is to find a good will writing tool to help you. It should help you use clear, unambiguous language to accurately describe your wishes. It should also explain your options and help you decide what to include in your will. For example,

  • Do you want to name several levels of executors?

  • Do you want to name more than one executor to work together?

  • Do you want to name guardians for your children or their property?

  • Do you want to create a trust for your children, so that they receive your property when their older than 18?

And a good will making template will help you know when you should see a lawyer for help writing your will. For example, you should talk to a lawyer if you:

  • Want to disinherit your spouse or child.

  • Are worried that someone might challenge your will.

  • Want to provide money and care for pets after your death.

  • Want to control what happens to your property long after your death.

  • Are worried about estate taxes.

1. What is a living trust?

A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.

A "living trust" (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death.

Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.

2. Why should I make a living trust?

The big advantage to making a living trust is that property left through the trust doesn't have to go through probate court. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate drags on for months before the inheritors get anything. And by that time, there's less for them to get: In many cases, about 5% of the property has been eaten up by lawyer and court fees. Still, not everyone has to worry about probate, and some people don't need a living trust at all.

3. How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee -- the person you appoint to handle the trust after your death -- simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.

4. Is it expensive to create a living trust?

A basic living trust isn't much more complicated than a will, and you probably won't need to hire a lawyer. With a good self-help book or software program, you can create a valid Declaration of Trust (the document that creates a trust) yourself. If you run into questions that a self-help publication doesn't answer, you may need to consult a lawyer, but you probably won't need to turn the whole job over to an expensive expert.

5. Is it a hassle to hold property in a living trust?

Making a living trust work for you does require some crucial paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become so common.

6. Is a living trust document ever made public, like a will?

No. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate -- inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, need not be made public.

7. Does a living trust protect property from creditors?

No. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

Generally, after your death, all property you owned -- including assets held in a living trust -- is subject to your lawful debts. For example, if your house is held in trust and passes to your children at your death, a creditor could demand that they pay the debt, up to the value of the house. Ownership of real estate is always a matter of public record, so creditors can always find out who inherited real estate. It can be more difficult for creditors to know who inherits other property, however (because a trust document, unlike a will, is not a matter of public record), and they may not bother tracking it down.

On the other hand, probate can also offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.

8. If I make a living trust, do I still need a will?

Yes, you do -- and here's why:

A will is an essential back-up device for property that you don't transfer to yourself as trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your trust -- which means that it won't pass under the terms of the trust document. But in your will, you can include a clause that names someone to get all of the property that you haven't left to a specific beneficiary.

If you don't have a will, any property that isn't transferred by your living trust or other probate-avoidance device (such as joint tenancy) will go to your closest relatives in an order determined by state law. These laws may not distribute property in the way you would have chosen.

9. Can a living trust reduce estate taxes?

A simple probate-avoidance living trust has no effect on state or federal estate taxes. Keep in mind that for deaths in 2016, only estates worth more than $5.45 million will owe federal estate tax. This means that very few people have to worry about this tax. This exemption amount will increase with inflation.

In the past, AB trusts were used to help couples save on estate taxes. However, the large personal exemption and "portability" for spouses make AB trusts largely unnecessary.

10. Does my living trust need an EIN?

A revocable living trust does not normally need its own TIN (Tax Identification Number) while the grantor is still alive. During the grantor’s life, the trust is revocable and taxes are paid by the grantor as an individual, using the grantor’s SSN (Social Security Number). In other words, when an institution requests an SSN or EIN (Employer Identification Number) for trust property, the grantor just uses his or her own SSN. When the grantor dies, the living trust becomes irrevocable and the successor trustee will get an EIN from the IRS to pay the trust’s taxes.

For shared property in shared living trusts, the grantors can use either person's SSN. When choosing which SSN to use, keep in mind that income on trust property will be reported through the SSN you select. This won't matter to couples who file taxes jointly, but it could make a difference to couples who file taxes with separate returns. For individually owned property in a shared living trust, use the owner's SSN.

Cost of Probate

Small Estates

In most states, an estate does not have to go through the probate process if it is worth less than a particular amount. For example, California estates worth less than $100,000 do not need to go through probate, while in Wisconsin the threshold is $50,000. In addition, most states offer a shortened and simplified probate process for small estates. Each state has an amount for what qualifies as a small estate. If the estate does qualify for small estate probate, the probate courts will not require you to have a legal representative. This can save a great deal of money in legal fees.

Legal Costs

Each state has different probate laws, so the costs can vary a great deal. For most estates, both an executor and a lawyer will be required for the probate process. Some states set a limit on the amount of fees that lawyers and executors can charge for probate services. For example, in California, attorneys and executors can each take a maximum of 4 percent of the first $100,000 of the gross value of the estate, then 3 percent of the next $100,000, then 2 percent of the next $800,000, then 1 percent of anything over that amount. In some other states, the courts may set fees they feel are fair. According to finance expert Liz Weston of MSN Money, this is generally around 3 percent of the estate.

Additional Costs

In addition to the fees paid to the lawyer and the executor, there may also be appraisal fees, court filing fees, bond fees, legal fees and accountant fees. Federal and state estate taxes will also need to be paid on larger estates. The additional costs can vary greatly from one state to the next, depending on individual state requirements. According to attorney Ken LaMance of LegalMatch, the typical probate process costs anywhere from 5 to 10 percent of an estate, but can go as high as 15 percent. Some states also set limits on fees that can be charged. For example, California appraisal fees are limited to 0.1 percent of the value of the assets, while probate court fees were set at $320 as of 2009. LaMance points out that court fees in other states can be as high as $3,000.

Avoiding Costs

These are several ways that you can avoid paying high probate costs. One of these is through setting up a living trust. In a living trust, you transfer the majority of your estate to a trust while you are still alive. The trust then becomes the owner of your property, so probate is not required. You also designate a successor trustee, who would control the trust on your death. The successor trustee can then distribute the assets of the trust to the beneficiaries you have specified in the trust document. Property owned jointly with rights of survivorship also passes automatically to the survivors and does not go through probate. Life insurance, pension plans and retirement accounts are paid directly to the named beneficiary, so these funds also do not need to go through probate.

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