Attorney Thomas B. Burton, of Burton Law LLC, in Eau Claire, Wisconsin is joined by Attorney Matthew Underwood, of Underwood Legal, LLC in Madison, Wisconsin and together they discuss in-depth, the Top 3 Reasons to Form a Revocable Living Trust.
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Thomas: Okay, welcome back. Today, I'm joined once again on the ‘Ask The Attorney’ series, by attorney Matthew Underwood, Underwood Legal LLC in Madison. He's an estate planning attorney and Matt, thank you for joining us.
Matthew: Thanks for having me today Tom.
Thomas: So today our topic is the top three reasons to form a revocable living trust and I asked Matt to come back on the show, A. because I know you get tired of just hearing for me and B. because trusts are big part of his practice.
So Matt, why don't you start us off with your number one or the one of the top three reasons you think to form a revocable living trust?
Mathew: So one of the top reasons and I am not alone in saying this, I think this would be on a lot of attorneys’ top reasons but that would be revocable trust, avoid probate court if they're set up properly. So, you know, what is probate? Well, it's a court-supervised process where, when someone passes away, the court overseas their estate. If you have a will, the will has to be delivered to the court and that will becomes public record. So there's really three reasons why most people want to avoid probate.
No. 1 – Probate is a slow process, meaning that it could take anywhere from 12 months to 18 months for this probate process to go through and that's potentially a long time while family is kind of waiting to get things wrapped up and be able to move on in life. So if we can have a quicker, more efficient process, I think that's it, often times in the best interest of the family.
Aside from the speed of probate, the next reason to avoid probate would just be the cost involved and when I mention in probate costs, there's a number of different layers to that. There is the cost of going through probate. So that includes a court filing fee, that includes a fee based on the size of the estate or sometimes we call that inventory filing fee. There's also newspaper publication fees. There could be process server fees. So there's a lot of costs that need to go into this probate process. And you know, what's the problem with that? Well, it just is less money that you can leave to your family members when the goal is to really maximize the amount of wealth that we transfer. Going through probate is not the optimal way to achieve that goal and just thinking of general numbers, probate fees can range anywhere from 3 to 5 percent of the size of your estate. And other than those court costs we talked about, often times family needs to hire an attorney, hire an accountant, financial advisor.
So there's other professionals that typically help out with this probate process because it's not the easiest to go through and aside from the relatively slow speed that probate happens at, the cost involved, the third reason to avoid probate would be that everything that happens in probate, is public record. Because probate happens in the court system, really everything that happens within that system is public record. So, for example, when you pass away, people can find out what your will said. They can find out what property you owned. They can find out who your beneficiaries are and they can find out how much money your beneficiaries are receiving. So that's potentially a lot of money or a lot of information that's out there, in that public realm and most times when I talk to people, they want to keep those matters private. So in other words, if something happens to me, I want my financial affairs and everything to stay private within the family and really a revocable trust is a really good way to do that because we can make sure that we pick the people who are administering our trust, we pick our trustees and we can make sure that those trustees won't have to go through that probate process to get things done.
So again, I don't think I'm alone in choosing that reason as one of the top reasons to have a revocable trust to avoid probate, but I'd be curious to hear from you Tom, what would you say is one of the, your top reasons to have a revocable trust?
Thomas: Yes, so I think your number one is probably what I would have picked as number one when clients walk in the office. At least here's how I have observed it if I have clients who have gone through a probate for a friend or relative, their parent or relative, often when they walk in, that is the main reason they tell me they want to put together a trust plan to avoid probate because they do not want their family to have to go through what they went through and that's basically how they describe it to me, you know, in their own words and usually I hear words like a lot of what you went through but like time, paperwork, cost and hassle because as you pointed out, it involves the court process and especially you know this we've all been living through this pandemic with court shutting down and moving to virtual at I don't know your experience Matt, but in my experience, nothing has been, the court system wasn't fast to begin with and it didn’t get faster during the pandemic. In fact, anything you had to send in, it seems to take longer to get it back. Were you seeing that as well?
Mathew: Yeah, I think you're right that the process you know, it was moving at its own speed and it could take a long time. But especially with the pandemic, you know, the other thing that sometimes comes up in probate are hearings, may be a creditor files a claim against an estate and there might be a need for a hearing, those hearings are typically done by phone right now which in some ways, speeds up the process where I don't have to find parking at the courthouse and you know a lot of extra time for that but it's harder to convey our message in telephone hearing sometimes, but you know, I think on the other side of that, the court staff is, it has to adjust as well. So not only small business owners and you know everyone else in the country had to adjust with a pandemic, the courts had to do that. And for that reason, I think you're right, things slow down as the courts have had to adjust and now they have staff that are working remotely.
So I think that you're right that probably did add to the time with the court having to adjust for everything that's going on.
Thomas: Yes, here in Wisconsin, I was recently reading our court system, according, responded better and faster than many court systems across the country, but for our viewers all over the country, I'm just saying, be aware that, pre-pandemic, the court systems were typically overburdened and underfunded and that only got worse, you know with the pandemic when suddenly there's a need to try to bring what is a you know, the court system traditionally lags the rest of society and technology and everything else. But trying to bring that old school system in the laws that were written in some cases decades or you know based on court cases from decades or hundreds of years ago, into our current 21st century, is a struggle.
So if you're going to go through that Probate Court process, you know, like Matt said it was never fast before, it's not going to be any faster now.
Another thing I've been seeing with client is the way I like to view it is as this, okay, we have a court system here. And if you do no planning at all, meaning you have no will or no trust, the court will deal with your estate, your assets, if they have to, right? If they have to, they will deal with it, but they're going to charge you a fee and it's a lot of paperwork and it's not going to be fast because they are busy with criminal matters. Like when you think when the public thinks about the courts, it's public safety and if you look at the statistics on the courts, you know criminal matters, they occupy a lot of the time of the courts and the judges, right?
So in my opinion Matt, the court system is not looking for more work to do, meaning we just want more peoples who didn't plan their estates. We want more probates to work with right, but if they have to they'll deal with it because that's the only way under the law to do it. So when you are think about your own estate, that's how I would think about it is if you want to be proactive, just opt out of the court system and view that as a last resort if you will.
Mathew: Yeah, I think I would agree with that Tom. I think if you have the luxury of time on your side and you have some time to do some good planning, you know, you have time and the ability to avoid that court process. There's more efficient ways that we can set things up. So if speed is one of those goals and you want to make sure that if you were to pass away that your spouse or your children can receive your assets and kind of continue on and move on with your lives. Then there's other options out there including that revocable living trust. So I think again if you have time on your side, if you have the capacity to sign legal documents, you can certainly work with a qualified attorney to avoid probate. Now, you know, we do encounter a number of cases where maybe a family member is contacting us after the fact when somebody already passes away. Well, then we might be stuck going through the probate process, in which case working with the attorney like Tom Burton or myself, you know, we'll help you through that process and get it done in an efficient manner as much as we can but again it's better to do that planning ahead of time. And while you're alive and well, meet with a good attorney and make sure you get some good planning in place and we can avoid having to go through this process.
Thomas: right. Okay, so there’s our big top one, avoid probate. We hear it a lot. It's on people's minds. Hopefully that gave you an overview a little more about what probate involves.
I'm going to hit number two, and now this is the one I thought of because there's a lot of reasons but we're just doing top three today and my second, the one I'm going to hit is when people don't often think about and don't know about but putting a trust in place during life can help you avoid the need for a court-ordered guardianship specifically think of later in life, when you're older or if you have a physical issue where you become incapacitated. So a lot of people don't know this about a trust. They focus on number one, which Matt covered really well in depth and I would say number one is the number one reason I hear people coming in. But what I like to tell them is there's a bonus reason to put this trust together which isn't just to pass your assets on, after you're gone which is important. But what's most important is your life and your health while you're alive, right and what I see happen a lot of times with no plan in place is again, we have a default system and what it means is if someone is suddenly incapacitated and they are laying in the hospital room and they don't have anyone to manage their financial or health affairs, is you have to go to the court and get someone appointed as guardian to administer their assets for them. And this becomes even more important, if you think about a case where you own a business or have you know, real estates like more and more assets to administer, the longer you're incapacitated or in that coma, it can be time and time is money and someone needs to be able to take care of things for you. So if you have a trust in place, the trust can name yourself as trustee while you're alive and healthy, but in almost all of my trust plans, I have incapacity provisions that say what happens if I'm temporarily incapacitated, you can name a successor trustee, someone to take over for you, while you're going to that health crisis or while you regain your health. Now, if you're older maybe you won't regain your health. You don't know but that's again where you can have a child named to step into your shoes to act as trustee.
So Matt, I know I'm the same when clients come in, a lot of times they bring up probate and I talk about that a lot with them, avoiding the probate and I sometimes even forget to mention, the protection from a court-ordered guardianship, but I actually think it's a really big built-in benefit to having the trust in place and retitling your assets while you're alive.
Mathew: Yeah, I would wholeheartedly agree with that. You know, when one of the things that we talk to our clients a lot about is their goals and I think you know, if you're like me and one of the first things we talk about with our clients is you know, what are your goals?
I don't know if, I've never had a client tell me one of my goals is, I want to spend more time in court or I want my family members to have to go to court to get things done for me. No one says that and you know, I hear at the themes you know, want to keep things private. I want to keep things efficient. I want the people that I trust to handle things for me. The revocable living trust is the way to do that and you know, when we don't do our own planning, that's when the court is there as a Last Resort, you know taking your words from our last point, but you know, it doesn't have to be that way. People have the ability to come up with their own plan. And if that plan doesn't involve Court, we can do that, we can set things up that way. So and I think you know, this also goes along with one of the common estate planning myths that I hear and that myth is that estate planning is all about what happens when you pass away, but that's only part of the story. What you're talking about Tom is, we're protecting people during their lifetime. So, you know, maybe I'm in the hospital and recovering and I need my spouse to pay my bills for me. Take care of my finances, you know, take care of things until I can recover and then resume some of those activities on my own. So your estate plan also protects you during your lifetime and so again by doing proper planning and you know naming a trustee, that person will be able to handle things for you without having to go to court and going through that whole process and just under this side, you know, when we're talking about setting up some legal documents ahead of time versus going through a court process almost always, it's cheaper to do the planning ahead of time and setting things up ahead of time rather than being reactive and then having to go through that court process. So in the end I get it, you know, I'm the same way when I'm shopping for services or Goods, you know, I'm also sensitive to price as well. I think that's just normal to be human. And that's one of the goals that I hear from my clients a lot as well. I mean we want to preserve the wealth we have and then get down to the Next Generation spouse, kids, whoever, so doing that planning ahead of time through revocable trust, that's a really great way to preserve assets and maximize that legacy you can give to your family.
Thomas: Okay, so Matt, that leads to our third big point, right? You're going to cover number three of the top 3 reasons to form the revocable trust and mine was sort of out there not out there. It's a really good bonus, but you don't see it come up as common. So let's hear from you. What do you have for number 3?
Mathew: Yeah, so the third point I have on here, I mean there's so many reasons to do a trust. It’s hard to pick that third one but I wouldn't say they that. . .
Thomas: It's time for another video.
Mathew: Yeah, we won't say all the reasons to have a revocable trust but I would say one of the main ones that were almost always talking to our clients about and if we're not bringing it up, our clients are bringing it up to us. And that's asset protection. So how can we take our life savings, you know everything that we work so hard for throughout our careers, through our life and then pass that on to our loved ones, in a way that our loved ones have control over that but any third parties that are wanting to get at that money, would be blocked from doing so.
So there's a couple different ways we can look at asset protection. I think one of the most common ones that we see on our offices asset protection for children and we could be talking about minor children or we could be talking about adult children. I think you know either way, we want to leave that money to our loved ones, but make sure it's protected. So what are we protecting that inheritance against? One example could be divorce. So if you leave property to your children and one of them were to get divorced depending on how your children handle that inheritance during their lifetime. It may have or may have not become marital property with that spouse. So upon a divorce, a spouse could be entitled to some of that money that they receive from Mom or Dad. So one thing we can do through a revocable trust is we can still have that inheritance go to that child, but we can make sure that only child has access to that money and if child were to get divorced and that spouse wouldn't be able to, you know have a claim to that inheritance.
So that's a really common one that I'm hearing is, you know, specifically asset protection from divorces. The divorce rate is, you know, 50% roughly. So it's a common event. So that's one thing that parents can protect against or least make sure that they're giving that protection to their children.
Another example of what to protect against could be creditors, so you maybe you have, you know, child that has some credit card debt, student debt, whatever it might be, if creditors try to go after their money, we can make sure that that inheritance is one asset that the creditors could not get their hands on and you know, we could take it to the extreme example where maybe kids, one of the kids is declaring bankruptcy. We can make sure that once they get through that bankruptcy, they still have that inheritance. They can use and use to support themselves.
Thomas: I don't want to interrupt you here but I sometimes bring up that creditor point too and sometimes, we hear creditors and we think oh, you know, my child isn't like that. They don't spend frivolously or whatever your notions are but I, like sometimes, I remember to point out, you know, it's not always, sometimes someone just, they do nothing wrong, but they end up with a judgment against them like a lawsuit or accident, something like that, you know, it's not always that based on their own financial skills as a person, right?
Thomas: and to protect that inheritance, while they get through that, you know period.
Mathew: exactly, the lawsuit is a great example, again, you could be minding your own business something could happen to you. You could be in a car accident and if we provide asset protection for our children, we can make sure that, you know, whether or not, children were at fault for that accident that that lawsuit or judgment wouldn't be able to claim any of that inheritance. So I think you're exactly right Tom. I think that's probably more common example or that maybe an example that hits little bit closer to home where you know, maybe my kids are financially, they're great, they're responsible, you know, we're naming them as our trustees even but we want to make sure that if anything unforeseen happens, that they're protected. Could even be kids that are in high risk occupations – Engineers, Doctors, Lawyers, if there's liability related to their professional practice, we can make sure that, that inheritance would be protected from that as well.
Thomas: and Matt, that’s a key that only the parent can set up that type of asset protection trust. I mean, you know, we can't get, you can't set up your own trust and get that type of good asset protection without getting too far off into the weeds here. Basically, it's a gift you can leave to your children or grandchildren that you can't even do it for yourself.
Am I right on that?
Mathew: Yeah, there's other states that allow people to create their own asset protection trust, Wisconsin isn't one of those states. So you're right. It's a value-added thing that parents can do for their kids. So we're not necessarily, you know, we're giving kids a hundred thousand dollars, we’re not you know, all of a sudden, giving $200,000 but we're saying, you know, here's your inheritance, and when you need it, it's there for you. You can access it but anybody else or you know, any other event that's going after that money, we can make sure that they would be blocked from that.
Thomas: Okay, well, thank you Matt. I think we should end it for today because we've gone on a fun journey through the world of trust planning but a quick recap, the top reasons we mentioned - One was, avoid probate. Two was one about avoiding a court-ordered guardianship and three today, was the asset protection piece for the trust planning.
So I think this, gives people a good overview of some of the top three reasons. There's more, maybe we can cover in a future video and Matt, thank you for joining us.