There is a common misperception misconception that if you have a will, you’re covered. And the marketplace feeds this notion promising cheap and easy documents you can make yourself. After all, lawyers are expensive, and who doesn’t like saving money? When I see these advertisements for DIY estate planning documents, the image I see in my head is poor Tom Hanks’ character in Castaway trying to take care of his cavity with an ice skate.
What a Will Does
A will is one way to state who will receive your property after you’re gone, who will be in charge of dividing your property, and who will take care of your minor children. A will only has legal power after you pass away. A will must go through probate, if the estate (all the property you own at death) has a gross value of over $150,000.
What a Will Does Not Do
A will does not avoid probate. Why is that important? Let’s say you have a $300,000 house with equity of about $100,000. Probate attorney and executor fees are calculated on the gross value of the estate. For this example, we’ll estimate that the statutory attorney and executor fees alone (excluding other costs) total $18,000. Add in 6% for realtor fees to sell the property, and nearly 40% of your equity has disappeared. Also, it has taken at least six months on average, but commonly even longer for your heirs to even see any of that money.
Revocable Living Trust – the Pain Killer
The solution to the probate problem is the revocable living trust. A revocable living trust answers the same questions a will does, e.g., who will receive your property after you’re gone, who will be in charge of dividing your property, and who will take care of your minor children’s property. It just does it in a way that allows your heirs to avoid probate, and take immediate appropriate action without waiting for court. There is more that a living trust can do to protect your family and providing for the future, as I’ve written about before here, and here.