OK, the word “scam” may be harsh sounding, but the way some attorneys use it does sum things up pretty accurately. I have been getting a lot of questions lately from clients and financial advisors about what a “trust under will” does and how some clients are being told by other attorneys that it is a way to avoid probate. Basically, a trust under will is a trust that becomes active after death, and the terms of the trust are spelled out in the Last Will and Testament, such as inheritance age limits. These testamentary trusts will even have a proper name, and now financial accounts and life insurance can list the proper name of the “trust under will” as the beneficiary. And because the account pays directly into this trust, we are told “there is no probate.”
Wow! That’s fantastic! So you can avoid probate and not have to create a revocable living trust? That’s so much less expensive! Unfortunately, half truths are often worse than outright lies, and when an attorney tells a client that a trust under will avoids probate, they’re giving a half truth. Let’s take a look at what happens to an asset in probate and an asset that goes into a trust under will.
The probate court process is only for assets still in a deceased person’s name after they have passed on. So if a mutual fund worth a million dollars goes through probate, it will be subject to a specific process:
- The executor has to be qualified and accepted by the court to take over management of the estate, and therefore take charge of the assets
- All of the assets have to be listed on an inventory, including listing each account and the value on the date of death
- Probate fees have to be assessed on all of the personal property assets, meaning the bank accounts, stock accounts, furniture, etc. have to pay up to $6,000 in court fees
- All of the assets that come into the estate have to be accounted for, and all of the payments out have to be accounted for, including submitting cancelled checks to the court in most cases
- The estate ends with the final distribution to the beneficiaries when there are no other assets left in probate.
OK, how is this different with a trust under will? Not much. While it doesn’t go to “probate,” it is considered a special court proceeding still administered by the clerks at the county courthouse just like probate. Here’s the process:
- The trustee has to be qualified and accepted by the court to take over management of the trust, and therefore take charge of the assets
- All of the assets have to be listed on an inventory, including listing each account going to the trust under will and its corresponding value on the date of death
- Trust fees have to be assessed on all of the personal property assets going to the trust, meaning the bank accounts, stock accounts, life insurance, etc. have to pay up to $6,000 in court fees
- Unless specifically waived, all of the assets that come into the trust thereafter have to be accounted for (and fees paid), and all of the payments out have to be accounted for
- The trust ends with the final distribution to the beneficiaries when there are no other assets left in the trust.
So there is not much of a difference at all. In addition to this, there are fees assessed on BOTH the probate assets AND the trust under will assets, so the total court fees which would have been capped in probate at $6,000 are now capped at up to $12,000 between probate court fees and the special proceedings fees.
And yet attorneys are espousing the “trust under will” process as if it were avoiding probate to the same extent that revocable living trusts do, and it is just not true. Just as the falsehoods and myths that “probate is no big deal” and “probate fees are not that high” are being touted by attorneys who make a lot of money off the probate court process, telling their clients that a “trust under will” avoids probate also puts a lot more money in the probate attorney’s pocket than a revocable living trust would, and it has the potential for doubling the court fees. As my grandfather used to say, if it sounds too good to be true, then it probably is.