The magic number: What $75,000 means for estate planning

I often get asked about revocable trusts by clients that are interested in avoiding probate. They want to avoid the hassle, the uncertainty, and the expense that comes from having a probate court oversee the administration of their estate. These are valid concerns but most Minnesotans don't actually need a revocable trust in order to make their estate administration simple, affordable and predictable. 

Before selecting a revocable trust as an estate planning instrument, I advise my clients to maximize the use of beneficiary designations available to them. An average Minnesotan estate consists of life insurance proceeds, retirement savings, investment accounts, a home, vehicles, and miscellaneous personal property. The great thing about life insurance policies and retirement/investment accounts is that you can designate someone to be a beneficiary for these instruments and the beneficiary will automatically receive the contents of your accounts in the event of your death. This means that even without creating a will or trust, you can direct these assets to the people you choose without the intervention of a probate court. In estate planning parlance, we call these instruments "non-probate assets." Unfortunately, not every asset has a beneficiary designation and that still leaves some assets--such as the family home, vehicles and personal property like photos and letters--in need of some instrument to control where they go. 

Prior to 2008, a family home needed to be jointly owned or placed into a trust in order to avoid probate. The state legislature fixed this problem by authorizing the use of transfer on death deeds (TODDs). TODDs allow people to name a beneficiary (called a "grantee beneficiary") on the deed of their house in the same way they can with their retirement and investment accounts. This means that homes no longer need to go into probate or trust to be passed on after an owner's death. This is where the $75,000 number comes into play. 

By using beneficiary designations on your retirement and investment accounts and a TODD on your home, you can avoid probate if the value of your remaining assets is less than $75,000. As long as the value of your remaining personal property isn't greater than $75,000, vehicle titles, safety deposit boxes, storage lockers, etc., can all be accessed and transferred with a death certificate and a simple document called an Affidavit for Collection of Personal Property. 

A basic will can direct how this property is distributed. Making a basic will includes naming a "personal representative" to distribute your property to the people you've chosen. With an estate smaller than $75,000, your personal representative can carry out your wishes without needing to go probate court. Thus, by maximizing the use of TODDs and beneficiary designations, you can avoid probate without creating a revocable trust. 

It's worth noting that although many people wish to avoid probate, the probate process isn't as complicated as most people fear--especially if the size of the estate has been minimized using the techniques I described above. Because even if you own a single luxury vehicle, it's easy for your estate to exceed $75,000 and require probate for distribution. For estates that are more than $75,000 but still relatively small, there's not that much to be intimidated by. The probate process mainly consists of running an ad in the newspaper, paying outstanding bills, and filing paperwork with the court. Small, simple estates can be probated with the assistance of an attorney for a few thousand dollars, which is paid by the estate. And if you're willing to spend the time researching the technical requirements of a small estate probate, you can even skip the attorney and do it yourself.   

Many people who are interested in revocable trusts don't understand that administering a revocable trust often requires a comparable amount of work to probating a small estate. Once a trust is created, it needs to be funded in order to operate. And to fund a trust with real estate, for example, the deed to the real estate needs to be changed. Once the trust is funded and the original trustees die, a lawyer is often needed to oversee the transition in trust management authority in accordance with the terms of the trust and current state law--especially if real estate needs to be sold and the proceeds distributed to the trust beneficiaries. 

So before you decide to use a revocable trust, consider whether you can shrink the size of your probate estate below $75,000 using a TODD and beneficiary designations. If you can't quite get your probate estate down to that size but you're close, consider the cost and expense of setting up a trust before rejecting a simple will as your primary estate planning document. 


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