As a succession planner, I am in constant dialogue with my clients’ attorneys about appropriate estate planning structures. Depending upon the state of residency, the training, and the perspective of the attorney, the dialogue can be interesting, especially when it comes to a few of my preferred structures, simple Pour Over Wills and Revocable Trusts. As we discuss these options, I commonly hear, “We can accomplish the same objectives with a Testamentary Trust Will.”, which is a Will containing a trust that is funded after the completion of probate. However, my classic response is, "Our clients who own a family business, and to varying degrees are subject to greater publicity and scrutiny, would prefer to remain private, and depending upon the state, avoid the hassles of probate, which cannot be guaranteed with a Testamentary Trust."
The attorney generally then responds with "Probate is not a factor in our state. There is no need to file an inventory for the public record so publicity is not a driving issue. Furthermore, legal charges to probate a Will are minimal and I can have it completed within two weeks of death. There is no need to pay me to transfer assets into the Revocable Trust, nor is there any reason to call me each time our client buys assets in the future."
If our mutual client lives in a community property state, the attorney generally also identifies the need to form one trust and to characterize the separate property for both spouses with a tone of discouragement implying, "It is a lot of effort and cost for no significant gain." The main point the attorney tries to convey is, it is cheaper and simpler to utilize a Testamentary Trust and breeze through probate.
The problem with a Testamentary Trust however, is from a succession management standpoint, aside from the speed - two weeks or so - it takes to probate the Will, a Testamentary Trust has no significant advantage over a Revocable Trust. As a result, I go into auto pilot, as I have had this conversation a number of times, and explain why as a succession planner I suggest a more complex estate document structure.
"As a succession planner, I fundamentally look at estate planning based upon succession of business and problem management. If I assume everything will go right in the administration and settlement of our clients' (husband and wife) estates, a Testamentary Trust is likely ideal. However, there is something about significant legacy assets that can create numerous challenges in an estate. After 40+ years of experience, I find in the event of a problem such as a probate challenge by a beneficiary, partner, franchiser, or creditor, there is a greater chance of our clients personal matters remaining private if they separate their Wills from the intimate trust construction and management directives relating to their spouse, children, and notably the ownership and management of the business. Furthermore, my experience confirms, in the event of probate complications such as contest, litigation among beneficiaries, creditor claims, etc. there is more latitude and economy in the management of a trust as trustee versus the management of an estate by a personal representative or executor. I also believe there is a high probability that with the advancement of medical technology and health care, there will be instances when one of our clients (husband or wife) will encounter a prolonged incapacity prior to their death. As a result, and with all due respect to a Durable Power of Attorney, I believe in light of the potential challenges noted above, the management of assets, notably a family business, is much simpler and cheaper when done by a trustee than by a court appointed guardian.”
In the end, although the Pour Over Will and Revocable Trust might be less common and appear to involve more work, these techniques provide flexibility and options to support the complex nature of business succession and problem management, and ultimately keep family and business matters private from public scrutiny.
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