Why a will won’t cut it
Only 32% of Americans have a will, says Caring.com. But that doesn’t mean the remaining 68% of Americans haven’t done any estate planning. It may be that a good number of people have opted against a will to spare their loved ones the hassle of probate.
Probate is the process of proving a will’s validity in a court of law. And it can often result in the delay of a transfer of assets. The average time it takes to complete probate is 20 months and the cost of the process on average ranges between 3-7% of the total value of the estate, according to Trust & Will, an online estate-planning service. Based on this estimate, if you own $2 million worth of real estate, even if that's your only asset, you're looking at a cost of $60,000 to $140,000 for probate. Probate records also become part of public records.
Costs and privacy aside, another issue with using a will to transfer real estate assets is that you’re required to go through the process in each state you own property. Your loved ones will automatically need to go through the process in your state of residence, which may be different than where your properties are located.
If you die in your home in New York and you're passing a Malibu beach house and a cabin in Aspen down to your son, the primary probate proceedings will take place in your home state — New York. But from there, your will is likely going to be subject to ancillary probate in California and Colorado.
Not only might your son have to go through probate in multiple states, but they may need to find and hire an attorney in multiple states. That's a headache you'd probably rather spare them.
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Learn MoreConsider a trust instead
If you don't like the idea of putting your loved ones through probate multiple times over, then you may want to use a living trust to pass along real estate assets. “Putting each property into your trust requires transferring the deed, but that’s easier on your beneficiaries and less expensive than going through probate several times,” said Cyndy Ranzau, wealth strategist with RBC Wealth Management-U.S..
Trusts offer a number of benefits, whether your assets are of the real estate variety or something else. But they can be especially useful for real estate.
First, with a revocable living trust, you maintain control over your assets for as long as you're alive. Secondly, trusts aren't subject to probate like wills are. If you transfer real estate assets into a trust, it may be a lot easier for your loved ones to inherit them. This especially holds true if you own properties in multiple states, since a trust negates the need for ancillary probate.
Also, when a will is filed in court, it becomes a matter of public record. That doesn't happen with a trust. So if you want to keep the details of your loved ones' inheritance a secret, a trust is a better tool to utilize.
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