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September 8, 2004: Will or Trust?

Q. I am still confused over the choice of wills or living trusts. So many of my friends say that a trust is the only way to go while my CPA and my attorney both maintain just doing a will is all that is necessary. But then why are my friends insisting that I do a trust?

A. In many states, such as California, I would agree that a living trust is the only way to go. In other states, such as New York, a living trust seems to be the superior method to structure and to settle an estate. But in several states, such as Colorado, we have a choice thanks to our state legislature’s adoption of the Uniform Probate Code and unsupervised administration.

There is not enough space in the column to list the Colorado advantages and disadvantages of a will and a trust. So I will adopt a contrarian’s point of view and list a few of the benefits of using a will in Colorado since there is so much out there chronicling the advantages of the living trust, especially in settings outside of Colorado.

Now unless there is estate tax exposure (a net worth of over $1,500,000, which will increase to over $2,000,000 in 2006), a couple should normally title everything in joint tenancy or designate each other as beneficiaries. In that case, no court involvement will be necessary at the first death anyway. Thus a living trust would only avoid a possible court proceeding at the second death.

People traditionally want to avoid probate for some of the following reasons: attorneys must be hired who then charge a percentage; assets are tied up for years, so bills go unpaid and transfers to beneficiaries cannot take place; court hearings are needed; inventories and reports must be filed with the court; and complicated accounting and legal work must be done to close the estate.

In Colorado an estate proceeding can begin within a few days of death and after appointment of the Personal Representative, bills can be paid and assets distributed. Attorneys are not required to take matters through court. Even with a will present, half of my probates never go to court because joint tenancy ownership was used and of the remaining one-half of the estates that are filed in court, maybe one-half of them are probated by the Personal Representative without the need of continuous attorney assistance. If involved, attorneys can only charge a reasonable amount for the reasonable time put in. In unsupervised administration, no reports or inventories need be filed with the court. Finally, the estate must remain open for six months after beginning (to let the Notice to Creditors response period run) but thereafter may be closed.

So for the vast majority of couples, normally there will be one court exposure---at the second death and then a relatively quick, easy, and uncomplicated process of settling matters as compared to probates in other states or even compared to dismantling a living trust.

Also note that in dealing with a living trust, assets are subject to the cost and effort to handle them twice---once to set up the trust and then to transfer them out of the trust to the beneficiaries. In an estate proceeding, assets are handled once.

The cost to do non-tax, non-trust wills is usually less than $200 each. The probate will probably run less than $2,300, including court costs, publication fees, etc. If an attorney is not involved, the cost drops to less than $300. To do a living trust, prices vary from around $1,500 to more than $10,000. Ask your friends the cost of setting up their trust and remind them that there is cost associated with taking the trust apart, along with the possible probate cost if assets are not properly titled in the trust.

Having settled estates under both methods in Colorado, I have clients who are very satisfied with a Colorado "probate" while others prefer the trust approach. But that is exactly the point---you have a choice. So do not let anyone tell you one way is better than the other, at least in Colorado. Each has its strengths and weaknesses, but base your review on the Colorado experience. It is up to you which way you decide to go.

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