Wills, Trusts, and Probate
In Trusts We Trust
Here are a few legal terms you should know:
- Codicil: An amendment to a will. (Keep copies!)
- Decedent: The person who has died.
- Fiduciary: Someone who acts on behalf of others.
- Attorney-in-fact: Someone who has the legal power to act on behalf of another person. You don't have to be a lawyer.
Lots of folks think that trusts are for the rich and famous. But that really isn't so. There are basically three types of trusts: testamentary, revocable, and irrevocable living trusts. Let's take a closer look at each.
A testamentary trust is usually established to hold assets for a specific reason, such as a child's college education. This kind of trust comes into effect after your parent's death as spelled out in the will. Your parent's assets are transferred to the trustee as if that trustee were the beneficiary. The trustee's job is to hold the property for the actual beneficiary. Two major reasons people set up this type of trust is to escape taxes and to provide a means to hold assets until a beneficiary reaches the age of maturity.
Revocable Living Trusts
Revocable living trusts are set up during your parent's lifetime. Your parent retains full control of the trust unless he or she becomes incapacitated. A secondary trustee is also designated, often a bank or other financial institution. Should your parent become incapacitated, the secondary trustee will take over and follow the directives your parent has outlined in the trust. This way your parent maintains control. One major advantage is that any property placed in the trust does not go through probate (see the section, “What's Up with Probate?” coming up). It also means that if your dad comes down with Alzheimer's, no one has to go through the rigorous legal steps involved in acquiring guardianship. The trust is completely private, whereas wills are public documents. No one can contest a trust as they can a will. Probate costs are avoided. The trust can be revoked by the maker at any time.
Irrevocable Living Trusts
Now enter the rich and famous. Irrevocable living trusts are used by people with extremely large estates. And as the name implies, these trusts can't be changed or destroyed. The grantor sets the terms of the trust during his or her lifetime, however, the grantor can't change those terms once they are set in motion. This is as close to setting something in stone as you can get. If your parent is in the position of being able to consider this option, he or she will certainly have the resources to hire lawyers to execute the trust.
What's Up with Probate?
Probate is a court where all the creditors of the person who has died are paid and where the estate is divided among the heirs after death. This is the court that also administers any estates without wills.
When your parent dies, you need to take Mom or Dad's will to your local county government office that handles probate. Some counties call these offices, probate court, registrar of wills, or surrogate's office. Be sure to bring an official copy of the death certificate and your personal identification when you arrive with the will. The court will look over your papers and confirm that they are valid and you, indeed, are the executor. If there is no will, the judge will appoint an executor. All of the stakeholders of the will—creditors, heirs, and beneficiaries—will be given notice that probate has begun. Next step is an inventory and appraisal of the estate. Everyone is paid who is due money—creditors and taxes get first dibs. An accounting of the estate's remains is completed and then the heirs receive their inheritance. Some people avoid going through the probate process by having “joint tenancy.” In this case, you jointly own property with your parent. By law, you as the survivor, own the property upon the co-owner's death. But you'll also be exposed to any judgments against the property and so may your spouse. It's best to talk with a good estate planner to determine whether or not this is best for you and your parent. Life insurance and pension benefits go directly to beneficiaries and/or survivors without going through the probate process.
On Being an Executor: Honor or Headache?
Some adult children think that the sibling chosen to be the executor is actually given an honor. But before you feel snubbed if you're not picked, here are just some of the things an executor does:
- Inventories all of the assets
- Identifies and lists all of the debt
- Arranges to have all assets and debts appraised
- Notifies creditors that they need to file their claims for payment and pays all creditors
- Files claims with insurance companies
- Opens a checking account from which to pay bills and deposit assets
- Closes old bank accounts
- Pays taxes to the state and federal government and files a final income tax return
- Decides whether or not assets must be sold to satisfy debts
- Distributes the assets as directed in the will
Still think it's an honor? As you can guess, depending on how large or complicated your parent's estate is, this process can literally take years. Compensation is given to the executor out of the estate and in many states the amount is set by law. If you live out of town or have an extremely busy life, it might make more sense to hire someone to act on your behalf. Whether you hire someone or do the work of the executor yourself, you can gain peace of mind in knowing that you've helped your parent close the final chapter in his or her life.
More on: Aging Parents
Excerpted from The Complete Idiot's Guide to Caring for Aging Parents Ã‚Â© 2001 by Linda Colvin Rhodes, Ed.D. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.
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