The lawyer found the file and much to his chagrin determined that the will was witnessed by two staffers who were no longer with him. So, he called the daughter and gave her the names of the witnesses and the last address he had for them and told her happy hunting. She was able to locate the witnesses and then had to hire a lawyer to prepare the affidavits. Once signed the will was admitted to probate and the estate was opened. The lawyer told her that after she filed the inventory, all she’d have to do is file a quick accounting showing the assets had been transferred to the Trust.
Two years later
Sandy got sick. She called the Lawyer’s office to see if there was anything that she needed to do or if anything had changed. The lawyers office told her her trust was still good, but for $500 they would be happy to meet with her and go over everything. She decided not to go. A few months later she died. Her daughter went to the safe deposit box and found the documents where they were left. She went to the bank and showed them the documents. The banker said, that the account at the bank was down to $10,000, but they could not release it to her without her filing the will with the Court. The daughter made an appointment with the Clerk of Court and a polite person helped her to fill out the papers. The Clerk looked at the will and saw that there was no self-proving affidavit. That meant that the witnesses would have to be located and swear that it was their signature, Clerk explained to her. The daughter called the attorney’s office and asked to speak to the attorney. When he came to the telephone, she said that she needed witness affidavits for the witnesses to the will. He said he would get the file which was in storage in a few days.
Signing
At the meeting to sign, she signed a power of attorney, an advanced medical directive, a Revocable living Trust and a pour over will, instructions on changing accounts and a bill for $4,000 in the office in front of the paralegal as notary and some witnesses. She said during the signing how great it was that her family would save so much in taxes and probate costs. She was elated. She went home and put them as directed in a joint safe deposit box with her daughter who was going to be the Trustee after her death. She did not look at the instructions, the attorney did not prepare any deeds. She did not transfer any accounts into the name of the Trust. She figured everything was taken care of.
Have you considered a Revocable Trust
“Sandy picked up the flier which read -Save Taxes through Revocable Trusts”. The flier went onto describe saving estate taxes and avoiding probate. The Virginia native was very excited about saving taxes and avoiding probate (though) she had no clue what that was. Sandy was widowed. She had three children. Her estate was $50,000 which she expected to deplete before she died. She lived on social security and the government pension her late husband Ralph had left her. She went to the seminar and a lawyer showed these power point presentations about the costs of probate and the estate taxes and she was a bit overwhealmed. But she made an appointment with him to go over her estate plan. She brought a financial statement with her that his paralegal had sent her and he talked to her about the savings that would be afforded by having a trust at just a mere $4,000. She figured she could do this for her kids. After the meeting she got a 3 inch thick stack of documents. They talked about businesses that she owned, S corporations that she owned, none of which seemed relevant to her. She called the office and talked to the paralegal who told her that this was boilerplate and if it didn’t apply don’t worry about it. An appointment was made and she went ahead to sign the documents.
Revocable or Living Trusts
Many people seem to have this misconception that Revocable Trusts (also known as “Living Trusts”) save taxes. The answer is a big more nuanced. A living trust can save estate taxes if a person is married and the trust is used to multiply the estate of husband and wife to take advantage of each persons unified credit exemption. You see when person dies, he or she has a unified credit exemption (unlimited in 2010 currently and $1 Million in 2011 currently). With a trust the unified credit exemption of the first to die can be credited to that persons estate for estate tax purposes. If assets were held jointly, that exemption would be wasted. So in that circumstance a trust saves estate taxes. What about a single or widowed person. The answer is pretty much “no”, except that you may be able to sprinkle income among generations to marginally save some income taxes.
Trusts do serve two purposes: (1) they avoid probate which in many states is a long and exhausting process and a public process. (2) they can provide for management of a person’s assets for the period after they become incompetent and after they die. If properly drafted this affords asset protection to later generations. These are very good reasons to have a trust and certainly need to be examined. As our next Tale will show, a Revocable Living Trust in and of itself, does not save taxes.