Case Study: Living trust to avoid probate…

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Case Study:  Younger Parents with Minor Children Who Have Moved From Out of State

 

This case study family has five members:  Mom and Dad are in their early 40’s and have done well for themselves.  They have two daughters and a son who all get along.  One of the daughters just turned 18 and the other children are minors.

During our initial consultation I review some general information about their family, their health and their financial status.  Mom and Dad are not close to retirement but are moving quickly in that direction.  Their total net worth is about $800,000 and includes a large house, several cars, life insurance, cash, bank accounts, brokerage and retirement accounts.

I am informed that they are not from Missouri and moved here a few years ago for the husband’s career.  They like it here, but all of their relatives live out of state and they plan to move home within the next five years.

After learning of their circumstances, goals and fears, I start by informing them they definitely need durable powers of attorney and healthcare powers of attorney.  These are two of the cornerstones of any estate plan and cover situations during life where one of the spouses has become incapacitated and is unable to make financial and healthcare decisions on their own.  The documents allow the other spouse to make those decisions for them and to serve as their legal agent in so doing.  These are crucial documents to have and it’s important, as with any aspect of estate planning, that we plan for all contingencies.  Specifically, we want to also name alternative agents to make decisions in case the other spouse has predeceased or is also incapacitated.

We next move to a discussion of wills and trusts.  Because they have about $800,000 in their nest egg, have a variety of assets and, in their particular case, are looking to move out of state within a few years, a revocable living trust makes perfect sense for them.  I describe the trust as a box that is created to place all of their assets.  All assets in the box when the second spouse passes away will avoid probate.  The primary purpose of a living trust is to avoid probate and to avoid the complexity, high cost and time wasting that probate can cause.

Since Mom and Dad are still relatively young, a trust only makes more sense.  They will likely have substantially more assets by the time they retire and would need a trust in any case.

For people interested in moving out of state, a trust can more easily be saved when that move occurs.  By saving, I mean it can be amended but will not have to be scrapped.  An attorney in the new state can amend the trust to note that it should now be governed by the laws of the new state, but the main provisions of the trust will stay intact.  With wills, that is usually not the case because a will is designed to one day be presented in the state in which the testator passes away.  A will from one state can therefore wind up needing to be construed by another state’s courts, which can create confusion and perhaps ruin the benefits of having a will in the first place.  Thus, a trust makes even more sense for the couple in this case analysis.  In cases where a family owns a piece of property out of state (a condo in Florida) perhaps, a trust makes it much easier to avoid probate with that out of state property, ensuring that an ancillary probate (i.e. a second probate out of state, usually for an out of state residence) will not have to be opened.