Trusts might offer farmers more control
In the end, estate planning is ultimately about how your assets are distributed to your heirs.
But the end can sometimes be a long time in coming, and there can be numerous bumps in the road. So while a will can direct to whom you want your property distributed, a revocable trust offers you more flexibility and control during your life’s journey, says Matt Tavrides, a Florida attorney with more than 20 years of estate planning experience.
Wills and trusts are really nothing more than a set of instructions on how you want your assets distributed.
"The real difference is how they work," Tavrides says. "Wills don’t work when you’re alive and well or when you become mentally disabled. They only work when you die.
"In the event of a disability and you only have a will, a judge will appoint a guardian. The judge decides who is in charge of you and your stuff," he says.
People often forget—or don’t even want to think about—that mental incapacitation can precede death by months, even years, and are not only due to old age, but also accident or illness. And yet your operation must go on if your family is to have income.
Trusts can work through all phases of your life. With a trust, control of your property is transferred to you and your trustee.
If you become mentally disabled, there is no need for a court-appointed guardian because you have already decided ahead of time who will be in control of both you and your property.
"A trust is all about retention of control," Tavrides says.
For young farmers, their biggest assets are often their children. And if Dad, Mom or both become mentally disabled or die, the biggest question is how the kids will be provided for. "The best way to do that is with a trust," Tavrides says.
Trusts will also allow you to avoid probate costs at your death. Each state’s laws are different in what they require, but in general, probate can cost your estate 3% to 5% of its value. Attorney fees are often the largest portion of these costs. In an estate worth $1 million, that means probate will often cost from $30,000 to $50,000, and that does not include estate taxes.
Trusts don’t require the estate to go through the probate process because the issues that are resolved by probate are already taken care of in the trust, Tavrides says. But even with a trust, there still is an administrative process that the trust goes through at death that involves attorney costs.
"The difference is that the trust administration fees are less than probate costs," he adds.
Tavrides does concede there are occasions when a will may provide sufficient legal coverage. "If there is a modest asset base, a trust might not make sense from a financial standpoint," he says. "But I cannot think of a situation where a will is superior to a trust. Again, control is the most important point."