Last week, we discussed trust-based estate planning fees. However, if your estate plan does not require the protections and benefits of a trust, then a will-based estate plan may be sufficient for you. These trust protections and benefits that are not available with a will include privacy, probate avoidance, and protections for minors, young adults, surviving spouse remarriage, beneficiary divorce, beneficiary indebtedness, lazy beneficiaries, mentally disabled beneficiaries, addicted beneficiaries, the family cottage, family pets and higher education funding.
A properly drafted estate plan keeps you in control while you are alive and well, plans for you and your loved ones in the event of your mental disability, and after you are gone, gives what you have to whom you want, when you want, the way you want, and if you can, you want to save taxes, fees and costs, all at the lowest predictable overall cost to you and those you love.
I regularly get asked, “How much does a will cost?” or, “How much is a trust?” Well, this is not a simple question to answer because a will or a trust is only a single component in a comprehensive overall estate plan. It is like asking a car dealer, “How much is it for the engine and transmission?” I guess the dealer could sell it to you, but it is not going to take you down the street.
Although a will can be the anchor of a viable will-based estate plan, there are two main drawbacks with wills:
- One drawback that you may not realize is that a will only controls assets in your sole name. Assets with joint owners or that have beneficiary, payable-on-death or transfer-on-death designations, bypass your will and are distributed in accordance with those other instructions.
- The second drawback is that a will must go through the probate court process. For your will instructions to be followed, the probate court must admit the will and appoint a personal representative (formerly executor) to carry out your instructions, at a cost that is typically 5%-10% of the gross value of those assets going through the probate court process.
There are a lot of different types of estate plans being offered out there. It is best that you know what you are getting. Last week, we discussed the two most common types of trust-based estate plans I see: bare bones, forms-based “simple” living trusts and fully-funded trust-based estate plans. In today’s column, we will cover the three most common types of will plans that I see: simple wills, wills with a testamentary trust and will-based estate plans.
Simple Will. A simple will just says, when I am gone, this is who gets all my stuff and this is who is going to make it happen. I have seen fees for attorney drafted wills as little as $50, but more likely are in the $150-$300 range. For free, you might attempt to use a Michigan statutory will form, but if it is not completely filled out properly, your instructions may not be followed.
What you may not know is:
- A will only takes effect at death. If you have only a will, but no financial or health care powers of attorney, upon your mental disability, your loved ones would have to petition the probate court to appoint both a guardian to make your personal and medical decisions, and a conservator to make your financial decisions, with additional fees. I call this the “Living Probate”.
- Any distributions to minors or mentally disabled beneficiaries require a probate court appointed conservator to manage those assets, for a fee. When the minors reach age 18, they gain all the wisdom and insight of adulthood and are entitled to receive their entire inheritances. They then may go to college, the University of Corvette.
Will with Testamentary Trust. To prevent a beneficiary from going to the University of Corvette, you may be tempted to just add some trust provisions to your simple will, to take effect after your death. You may want to do this because it doesn’t cost much more than a simple will. However:
- There typically are only limited trust instructions in a will, maybe only several pages. If a situation arises which is not covered in those several pages, which is highly likely, the probate court will have to be petitioned to fill in the gaps in those trust instructions, for a fee.
- A testamentary trust is typically supervised by the probate court for the lifetime of the trust, including annual reports that must be prepared for the court. More fees.
- If you do not have financial or health care powers of attorney, you have not avoided a guardianship or conservatorship upon your mental disability. And more fees
If you want a trust, you are usually better off having a revocable living trust. You not only have more instructions with a revocable living trust after your death, it avoids probate court supervision if properly drafted and funded. Trust funding is completely and correctly designating your trust and/or individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust.
Will-Based Estate Plan. A will-based estate plan is what I consider the first viable type of estate plan and the absolute minimum everyone should have. It includes a simple will and both financial and health care powers of attorney. If you have minor children, it may also include a parental appointment of guardian. With a will-based estate plan:
- You avoid probate court proceedings for your guardianship and conservatorship during your mental disability.
- You also avoid probate court proceedings to appoint a guardian for your minor children upon your mental disability or death.
- Your will must go through the probate process after your death, with associated fees.
It would not be unreasonable to pay $650-$800 for a will-based estate plan for a single person. Many attorneys, including myself, give clients a break on the fee when drafting will-based estate plans for a couple. I do not charge double the single person fee because I meet with both of them at the same time, and the plans are usually very similar and reciprocal.
A will-based estate plan may include other documents and services. These may be assistance with asset protection services such as the removal of joint owners and adding financial power of attorney agents as signers on accounts and transfer-on-death (Ladybird) deeds and assistance with probate avoidance planning with beneficiary, transfer-on-death and payable-on-death designations. The addition of asset protection or probate avoidance services can increase the cost of a will-based estate plan to $2,000-$3,000, or more.
As you may surmise, I do not recommend simple wills or wills with testamentary trusts. If you do not choose a fully-funded trust-based estate plan, you should have a will-based estate plan, which at a minimum, should include financial and health care powers of attorney and a will.
By: Matthew M. Wallace, CPA, JD
Published edited February 21, 2016 in The Times Herald newspaper, Port Huron, Michigan as: With Will-Based Estate Planning Fees, You Get What You Pay For