Law Offices of Janet L. Dobrovolny

Below is the chapter on wills and trusts that is taken directly from my first book You've Earned It Don't Lose It. This chapter was written with the help of my own trust lawyer, Janet L. Dobrovolny.

- Suze Orman

The Trust

If you want to avoid the problems that having only a will or not having a will creates, consider having a trust. The following portion of this discussion will give you a basic understanding of some of the different trusts and how they can benefit you.

1. Revocable Trust or Living Trust: The document, as it is generally referred to.

2. Trustor: The person who creates the trust, who owns the property that will be put in the trust. That would be you. When setting up a trust with a partner or a spouse, you would be known as trustors.

3. Trustee: The person you designate to make all the decisions about the money and property in the trust. Ninety-nine percent of the time this will be you. Again, if you and your partner or spouse are designated together, then you are known as cotrustees. An institution can also be named as a trustee, if you wish.

4. Successor Trustee: The person, or people, you designate to manage your trust if something happens to you.

5. Beneficiary or beneficiaries: The person or people who will receive the assets of the trust upon your death.

FAQ About Trusts

What is a trust?
A trust is a device that allows you to transfer legal title of your property to another person (or to yourself as trustee) to hold for the benefit of yet another person (beneficiary) in the cheapest and most effective way.

Can a revocable living trust be changed at any time?
Yes. It can be amended easily at any time although it may cost a nominal fee. This is why it is referred to as a revocable living trust.

What is the main purpose of a revocable living trust?
The purpose is to avoid the probate procedure! The reason that a trust bypasses probate is that you have taken the steps, while you are alive, to transfer assets from your name as an individual into the separate entity of the trust. When you die, the trust doesn't die. It simply appoints the successor trustee, whom you have selected, and gives that person the legal authority to sign over the contents of the trust to whomever you have designated as your beneficiary. The successor trustee and the beneficiary can be the same person.

What is the difference between a trust and a will?
Will: The primary difference is that the provisions of a will can be carried out only by a court order - a lengthy and expensive process. In California, probating a will usually takes between 9 months to 12 months. However, it is not uncommon for an estate to be in probate for 2 years. When your estate is probated, you will have to file a separate income tax return for the estate, as well as disclose private financial information for public record.

Trust: A trust gives the trustee the legal authority to distribute assets immediately to the beneficiaries based on the terms of the trust. No court is involved. No public notice of death is required as it is with a will. All that is required is a death certificate and a trust document that describes how things are to be distributed through the trust. Because a trust bypasses the court system, or probate, there are no fees, and there is no public record of the value of your estate, protecting your privacy. Usually assets are transferred to the beneficiary within 3 to 4 months. Obviously this is much quicker than the 12 months it might take to probate a will!

What's the point of a will?
There really isn't much point. You can prepare a will as a backup in order to pass on items such as jewelry and furniture that don't have a legal title and to express your wishes regarding the disposition of your remains and memorial services.

Why do some lawyers tell you that you do not need a trust unless you have a really large estate?
If you were a lawyer, would you rather make $2500 - $5000 to draw up a trust and estate plan, or thousands and thousands of dollars to probate a will? Though most plans fall somewhere in the middle of the range, even an estate with a value of $100,000 will earn a lawyer $3,150, the courts $1000, and the executor $3,150 in fees, for a total of at least $7300. And the bigger the estate, the higher these costs can get. Basically, you and your heirs could lose if you don't have a trust.

Why don't more people have a trust?
People don't understand what a trust is and how it works because most general practice attorneys are not well versed in trusts and don't explain them in an understandable way. Traditionally, too, the terms "trust" and "estate" have always been associated with the very rich. That just isn't so anymore.

How is a trust prepared?
A document is drawn up according to a particular format. You sign it, and your signature is notarized. The titles to all your properties are then transferred into the trust. For instance, the deed to your house will no longer read "Suze Orman," it will read "Suze Orman, trustee for the Suze Orman Trust."

Who should have a trust?
Almost everyone should have a trust, especially those who live in states where there are statutory probate fees. Setting up a trust is beneficial if you own a home or real estate. Even if you live in a state where there aren't statutory probate fees, a trust will usually cost less than the lawyer's fee and court fees for the probate proceedings. The court and the lawyers benefit if you do not have a trust. Even the federal government - and, in some cases, the state - benefit when estate taxes are due.

Who doesn't need a trust?
People who can pass property and assets by a probate affidavit* or other informal procedure should not have a trust. For those who are in the midst of applying for Medicaid or if there is a strong possibility, because of age and financial conditions, that such assistance may be needed in the near future, a trust is not recommended as well. If you have Medicaid and already have a trust, be sure to consult an expert in this area about financial ramifications. (Remember, Medicaid is assistance for the needy. That generally indicates financial hardship, which we are trying to help you avoid!) So the answer to our question is that very, very few people should not have a trust.

*A probate affidavit is a legal form stating that assets are under a certain designated value. When beneficiaries present the sworn document to a title holder, such as a bank or mutual fund company, showing entitlement, the title holder may then legally transfer the assets to the beneficiary without a court order. This designated value may vary from state to state, according to each state's probate requirements.

Do you need a lawyer to draw up a trust, or can you get a trust "form" at a stationery store or from a book or use your financial planner?
Suze and Janet teamed up to create Suze's Will and Trust Kit available for purchase online. The documents in this kit include the same ones used by Janet's office: Trust, Wills, Health Care Directive, Power of Attorney. Please note that this kit creates a basic trust. If you need to "upgrade" to a tax planning trust, please consult with a lawyer who specializes in trusts. Janet is one of these specialists. She would be happy to review your Will & Trust kit documents and "upgrade" it to a tax planning trust. She would charge her hourly fee, please Call Ellie to make an appointment.

If all you have is a house, then the Will & Trust kit is for you. If you have more than just a house, or you aren't the type who will take the time to read a book, it would be wise to consult with a lawyer who specializes in trusts.

* Suze's Will & Trust kit is available on her website and amazon.com
Please note: We recommend having a title company or law office change the title on your real estate. Our offices would be happy to draft your deed(s). Please Call Ellie to get a price quote, prices vary by state.