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The Moneyist: ‘We have no children’: My attorney says avoid probate. Should I put my $850K estate in a trust, and split it between family and charity?

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Dear Quentin,

My husband and I are in our early 40s, and we recently met with an attorney to begin estate planning. We now have assets worth $850,000 that we would like to go to our nieces, nephews and charitable organizations upon our death. We have no children. When we recently met with an estate-planning attorney, she gave us several options. 

The option she recommended is to establish a trust, which would allow us to avoid probate court. Is probate court really that bad? After all, we will be deceased! I ask because the cost difference of establishing a trust is $3,000 versus $500 for creating a will. We’re wondering if creating a trust is really a necessary expense?

Confused About Probate

Dear Confused,

There are no rules to say how much you should leave to charity and how much you should leave to extended family. By all means set up a trust and a will for any assets that are not part of the trust. If you died intestate — without a valid will — your estate would go through the probate process in accordance with state law. The probate court will take an accounting of all the assets in the estate: real estate, life-insurance policies, bank accounts, furniture and jewelry. These assets will then be distributed to the beneficiaries. 

If you are unsure, seek a second opinion. Every person’s estate is different, and every state is different. There is no one-size-fits-all. Your attorney is right about one thing: Probate is the equivalent of sticking a sign in your front yard with all the details of your assets for your neighbors to see. Setting up a trust can be more expensive, but given the amount of money involved it may be worthwhile. You will also have to think of a trustee: a relative, friend, or even a bank. In addition, you can also name beneficiaries on your various bank accounts so they too avoid probate. 

Some people add beneficiaries to the deed of their home while they are alive to avoid the probate process. That’s often a big mistake. Firstly, a transfer-on-death deed and/or leaving a property to a relative or relatives in your will means they will get the full benefit of the “step-up” basis on capital gains tax. That is, the profit on any sale would be calculated as the sale price minus the recent appraised/market price of the home — and not on the original purchase price. Secondly, a transfer-on-death deed would also be cheaper than setting up a trust.

“Probate costs involve far more than the $500 of setting up a will. ”

Probate costs involve far more than the $500 of setting up a will. Let’s say your estate is worth a cool $1 million when you pass away. “The fees to probate an estate are set by statute,” says Kern Singh, the founder of Singh Law Firm in Fremont, Calif. “If your gross estate is worth $1 million, the attorney fees and executor fees equal $46,000. In addition to this, there will be several thousand dollars in court fees. We can conservatively call it $50,000 that your estate will pay before your $1 million gross estate is distributed to your beneficiaries.”

Singh agrees with your attorney to avoid probate if at all possible. “Establishing and administering a living trust is one of the most guaranteed financially savvy choices you could make,” he says. “Regardless of what your estate is worth, to establish a trust and administer a trust once you are no longer might cost one-tenth of the cost that it would cost for your estate to go through probate. Possibly far less, depending on your facts. Deciding not to prepare a living trust based on cost is truly a penny-wise, pound-foolish choice.”

Charitable sentiment is weakening in 2022, some studies have found, and that is not entirely unusual during a time of economic uncertainty and a bearish stock market. Kudos to you for thinking of your favorite causes. There is a great deal of satisfaction to be had by leaving a share of one’s estate to causes that support people who have not had the same opportunities in life, or help animals who have suffered unnecessarily at the hands of humans. We all have one life to live, and the ability to make that life easier for others is a gift. 

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

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