The following descriptions of basic estate planning principles are for general information purposes only. They should not be relied upon in making estate planning decisions. They are intended only to give a general understanding of how these principles work so that the reader can have a more informed conversation with his or her estate planning attorney. The reader should consult with his or her estate planning attorney regarding his or her particular circumstances.
What does a basic estate plan look like?
A basic estate plan in Utah will usually consist of several documents:
(1) a revocable trust
(2) a pour-over will
(3) a general assignment of assets to the revocable trust
(4) a financial power of attorney
(5) a health care directive
Each of these documents is discussed below.
For simple estate plans, some attorneys prefer to use a traditional will rather than a revocable trust, a pour-over will and a general assignment. Using a traditional will requires that the estate go through probate. For more detail on the advantages of a revocable trust and the disadvantages of probate, see “Do I need a revocable trust?” and “What is probate?” below.
What if I die without an estate plan?
When a person dies without an estate plan, the first question to ask is whether any of her property was held in joint tenancy or had a valid beneficiary designation attached to it. At death, property held in joint tenancy automatically passes to the surviving joint tenant. Property that is subject to a valid beneficiary designation (such as a retirement plan, the proceeds under a life insurance policy or, in some cases, a bank or brokerage account) passes to the beneficiary designated.
When a person dies without an estate plan, she is said to have died “intestate,” and any property that is not disposed of under a joint tenancy arrangement or under a beneficiary designation is distributed under the rules of intestate succession. In Utah, the rules of intestate succession provide as follows:
If the deceased person was married when she died, and if she has no descendants (children, grandchildren, etc.), or if all of her descendants are also her surviving spouse’s descendants, then all of her property passes to her surviving spouse. If the person was married, and if she has descendants who are not the surviving spouse’s descendants, the surviving spouse receives $75,000 off the top, plus one-half of the balance of the deceased person’s property. The balance of the deceased person’s property passes to her descendants.
If the deceased person was not married when she died, the property passes to her descendants. If the deceased person has no descendants, it passes to her parents, and if her parents are not living, it passes to her brothers and sisters or to the children of deceased brothers and sisters.
Some people with very simple estates are content to rely upon joint tenancy arrangements, beneficiary designations and the rules governing intestate succession. However, one should consult with one’s attorney before deciding to go that route.
At the very least, a person with minor children should have a simple will that nominates guardians for the children in the event the person dies while the children are still minors.
Do I need a revocable trust?
It is generally advisable to have a revocable trust rather than a traditional will. Where a revocable trust is used, the dispositive terms of the estate plan (i.e. the “who gets what” provisions) are contained in the revocable trust.
A revocable trust accomplishes two important things. First, it avoids the need for probate of one’s estate after one dies, and probate is generally something to be avoided. Second, a revocable trust avoids the need for a court-supervised conservatorship in the event one becomes incapacitated.
In Utah, the probate process is not as inconvenient as it is in many other states, which means the need to avoid probate is not as pressing in Utah as it is in some other states. (See “What is probate?” below.) However, a court-supervised conservatorship is always a burdensome process, and avoidance of that alone may be a sufficient reason to have a revocable trust.
Note that a revocable trust avoids probate and a conservatorship only to the extent that a person’s assets are transferred into the trust. If the assets are not transferred into the trust, the revocable trust serves no purpose. (See “How do I fund my revocable trust?” below.)
As noted above, some Utah attorneys prefer to use a traditional will rather than a revocable trust for small, simple estates. Their reasoning is that (1) probate in Utah is relatively easy; (2) clients often do not transfer their assets to the revocable trust, in which case the assets must pass through probate anyway; and (3) the preparation of a revocable trust, a pour-over will, a general assignment and the deeds to transfer real estate to the trust will cost more than the preparation of a traditional will.
The primary arguments in favor of using a revocable trust are that (1) even with stream-lined probate procedures, it is still better to avoid probate; (2) a probated will is a matter of public record, while a revocable trust is private; (3) a revocable trust is helpful to avoid a court-supervised conservatorship; (4) if the client owns real property in another state, a revocable trust will avoid the need for (and cost of) an ancillary probate in the other state; (5) a revocable trust will avoid the need for probate if the client moves to a state that has very cumbersome probate procedures (like California); and (6) most clients can and will get their assets transferred to their revocable trusts if they are given the appropriate guidance.
Ultimately, a Utah client should discuss with his or her attorney whether a traditional will or a revocable trust best suits the client’s individual needs, and what the respective cost will be of each option.
What if my estate is very small?
In Utah, if a person dies owning less than $100,000, and if none of the property the person owns is real estate, no probate of the person’s estate will be needed. The deceased person’s property can be distributed to the people who are entitled to it by presenting a simple affidavit to banks and brokerage firms who hold the property. This is true if the person dies with or without an estate plan.
If a person’s estate qualifies for this affidavit procedure, she does not need a revocable trust in order to avoid probate. However, if there is a good possibility that her estate will grow over the years, it may be advisable to use a revocable trust anyway. Or if the person is elderly, a revocable trust might be advisable in order to avoid a court-supervised conservatorship in the event the person becomes incapacitated. (See “Do I need a revocable trust?” above for a discussion of reasons one might want a revocable trust.)
Does a revocable trust save taxes?
The simple answer is “No.” As explained above, the purpose of a revocable trust is to avoid probate and avoid court-supervised conservatorships.
A revocable trust does not reduce one’s income tax. From a tax standpoint, a person’s revocable trust is her alter ego. Indeed, the tax identification number for a revocable trust is the person’s own social security number. Income earned on assets held in a revocable trust is reported on the person’s own individual income tax return.
Similarly, a revocable trust does not, in itself, save estate taxes. While a revocable trust might contain provisions that help reduce estate taxes, those same provisions could be included in a traditional will. The mere fact that a person has a revocable trust does not mean that her estate plan is properly designed to minimize estate taxes.
How does a revocable trust avoid probate?
Property must pass through probate if it is held in the decedent’s name at the time of death, unless it was held in joint tenancy with another person or has a valid beneficiary designation. (See “Are there other ways to avoid probate?” below.)
Property that is held in a revocable trust is not titled in the name of the decedent. It is titled in the name of the trustee of the trust. It is therefore not subject to probate. Property held in a revocable trust avoids probate even if the decedent was the trustee of her own revocable trust. Indeed, in most cases, a person will serve as trustee of her own revocable trust. What matters is that title to the property was held by her in her fiduciary capacity, as trustee of the revocable trust, and not in her own name as an individual.
Merely having a revocable trust does not avoid probate. The decedent’s property must be held in the revocable trust. Only property that is held in the revocable trust will escape probate. Property that is not held in the revocable trust will have to pass through probate, unless it is held in joint tenancy or has a beneficiary designation. (See “How do I fund my revocable trust?” below.) Once the property passes through probate, it will be disposed of under the terms of the revocable trust, through the use of a pour-over will. (See “What is a pour-over will?” below.)
What is probate?
Probate is a court-supervised process by which a deceased person’s creditors are paid and the decedent’s property is distributed to the persons who are entitled to it. Historically, probate was a lengthy, inconvenient and expensive process. The probate process would generally take at least a year from start to finish, and it was not uncommon for it to last several years. Frequent court hearings would be required as court approval was needed before any significant action could be taken, and the many court filings resulted in large attorney, accountant and other professional fees. Such a cumbersome probate process still exists in some states.
Utah has very stream-lined probate procedures. If no dispute arises, it is possible for the estate to be probated without there ever being a hearing before a judge. All matters can be resolved through filings with the court clerk. Nonetheless, if a question or dispute arises that requires a judge’s ruling, it is still possible to get the matter resolved by a judge.
Note that a probated will is a matter of public record. If one does not want the terms of one’s will to be made public, one should consider using a revocable trust rather than a traditional will. See “Do I need a revocable trust?” above.
How do I fund my revocable trust?
Property that is held in a revocable trust will avoid probate. However, it is not sufficient to just have a revocable trust. The deceased person’s property must be held in it when she dies.
Once a person signs a revocable trust, she should immediately transfer her property to the trust. For real estate, this is accomplished by signing a deed transferring the property from her name, as an individual, to her name as trustee of the trust. For example, if Mary Jones creates the Mary Jones Revocable Trust, she would sign a deed transferring her home from “Mary Jones” to “Mary Jones, as trustee of the Mary Jones Revocable Trust.” Title to bank accounts and brokerage accounts should be transferred in the same manner.
If a person acquires real estate or opens new bank or brokerage accounts after the revocable trust is created, title to that newly-acquired property should also be taken by her in her capacity as the trustee of the trust, not in her individual capacity.
Some property, such as property that is held in joint tenancy and property that has a beneficiary designation need not, and should not, be held in a revocable trust. (See “Are there other ways to avoid probate?” below.)
Property that does not lend itself to formal title is transferred to a revocable trust by means of a General Assignment. (See “What is a General Assignment?” below.)
Are there other ways to avoid probate?
Property that is held in joint tenancy escapes probate. On the death of one joint tenant, it passes outside probate to the surviving joint tenant. One would not, therefore, hold joint tenancy property in a revocable trust.
Similarly, property that has a valid beneficiary designation escapes probate. On death, it passes, outside probate, to the beneficiary designated. One would not, therefore hold a life insurance policy, a retirement plan or a bank or brokerage account in a revocable trust if the policy, plan or account has a beneficiary designated. Indeed, one cannot transfer ownership of a retirement plan to a revocable trust because only the employee may be the owner of the plan during her lifetime.
How does a revocable trust operate?
While the creator of a revocable trust is alive and mentally competent, she has complete control over the revocable trust and the property held in the trust. She can amend or revoke the trust at any time; she can withdraw property from the trust at any time; and she has complete control over how the trust assets are invested.
If the creator of the revocable trust becomes incapacitated, the successor trustee identified in the trust will immediately step in and begin to manage the trust property. No court involvement will be needed.
Similarly, when the creator of the trust dies, the successor trustee assumes control of the trust property and begins the process of paying creditors, paying taxes and distributing the property to the persons who are entitled to it under the terms of the trust, without the need for court involvement.
Frequently, a husband and wife will create a revocable trust together. Most often, they will serve as co-trustees of the trust. They will have the power, acting together, to amend the trust at any time, and either spouse, acting alone, will be able to revoke the trust at any time. If one spouse becomes incapacitated, the other spouse will serve as sole trustee. Upon the death of one spouse, the trust may divide into several new trusts, as described under “Basic Estate Tax Planning” on this website.
What is a General Assignment?
In order for a revocable trust to successfully eliminate the need for a probate, it must hold all of the decedent’s property (other than joint tenancy property and property that has a beneficiary designation). (See “Are there other ways to avoid probate?” above.)
Assets that are susceptible to formal, registered title, such as real estate, bank accounts and brokerage accounts, are transferred to the revocable trust by registering them in the name of the trustee of the trust. (See “How do I fund my revocable trust?” above.)
However some assets, like jewelry and furniture, do not lend themselves to formal title. Such assets can be transferred to the revocable trust through a General Assignment. A General Assignment contains broad language transferring to the revocable trust all of the person’s tangible personal property and other assets that cannot be transferred in any other way, as well as all such property that is acquired in the future.
What is a pour-over will?
A pour-over will should always accompany a revocable trust.
Many people who create revocable trusts neglect to transfer all of their property to their revocable trust. And often, when they acquire new property, they neglect to take title in their names as trustees of their revocable trusts. The result is that they die owning property in their names, as individuals, rather than in their revocable trusts. Property that is held in the revocable trust will successfully avoid probate, but property that is not held in the revocable trust must pass through probate (unless it is held in joint tenancy or has a valid beneficiary designation). (See “Are there other ways to avoid probate?” above.)
At the end of the probate process, the executor of the estate must distribute the probated property somewhere. All of the provisions of the deceased person’s estate plan that explain who is supposed to get what property are contained in the revocable trust. So, what is needed is a simple will that directs any property that had to pass through probate into the revocable trust. That is what a pour-over will does. It pours over into the revocable trust any property that had to pass through probate because the person neglected to put the property in the revocable trust while she was alive. The pour-over will just puts the property into the revocable trust, where it should have been in the first place. But it does so only after an unnecessary probate.
What property can I give away?
In general , any property that a person owns can be disposed of in the person’s estate plan, and will be disposed of under the rules governing intestate succession if the person dies without an estate plan (unless the property is held in joint tenancy or is subject to a valid beneficiary designation, in which case the property passes to the surviving joint tenant or to the beneficiary designated).
In Utah, a person owns property that is titled in her name. This property will be distributed as part of the person’s estate. This is true whether the person is single or married.
If a married couple owns property, for example, as “William and Mary Jones,” one-half of the property will be part of William’s estate and one-half will be part of Mary’s estate. If they own the property as “William and Mary Jones, husband and wife,” the property will be treated as if it were held by William and Mary, as joint tenants, and the property will automatically pass to the surviving spouse outside probate.
Can I avoid a will contest?
If a person believes that he or she should have received more under an estate plan than the estate plan provides for, and if he or she believes that the deceased person lacked the mental capacity to make an estate plan, or believes that someone exercised undue influence over the deceased person, he or she can contest the estate plan.
The most common technique that is used for reducing the possibility of a contest is the inclusion of a no-contest clause in the will or revocable trust. However, in Utah, the enforceability of no-contest clauses is greatly restricted. No-contest clauses are enforceable in Utah only against frivolous contests. If the contesting beneficiary has probable cause for bringing the contest, the no-contest clause is not enforceable against him or her.
What about my retirement plan?
Most retirement plans permit the employee to designate a beneficiary. Where the employee has done so, the retirement plan assets will pass to the beneficiary upon the owner’s death, and will not be subject to probate. For this reason, there is no need to transfer a retirement plan to a revocable trust. Indeed, federal law prohibits ownership of a retirement plan from being transferred to a revocable trust. (For a discussion of the taxation of retirement plans, see “Retirement Plans” under “Basic Estate Tax Information” on this website.)
What about my life insurance?
Life insurance policies will generally have a beneficiary. If so, the death proceeds will pass to the beneficiary upon the insured person’s death, and will not be subject to probate (unless the estate itself is named as the beneficiary). For that reason, there is no need to transfer ownership of a life insurance policy to a revocable trust in order to avoid probate of the policy proceeds. However, it may nonetheless be advisable to hold a life insurance policy in a revocable trust in order to avoid the need for a court-supervised conservatorship in the event the insured becomes incapacitated. (For a discussion of tax issues associated with ownership of life insurance policies, see “Life Insurance Trusts” under “Advanced Estate Planning Information” on this website.)
What is a power of attorney?
If a person becomes incapacitated, someone will be needed to manage her financial affairs. If she has a revocable trust in place, the successor trustee of her revocable trust will immediately start to manage the assets in the trust. No court involvement will be needed.
However, what happens if not all of the incapacitated person’s assets have been transferred to the revocable trust? The successor trustee of the revocable trust will not have the authority to manage assets that are not held in the trust. In that case, if the person has a financial power of attorney in place, the person’s agent under the power of attorney will have the authority to manage the assets that are not held in the trust. In many cases, the agent will be given the authority to transfer those assets to the trust. But without a power of attorney, assets not held in the revocable trust would be subject to a court-supervised conservatorship, which is an expensive and burdensome process. Court supervised conservatorships are to be avoided, if possible.
What is a Health Care Directive?
In the event a person becomes unable to make medical decisions for himself or herself, a Health Care Directive serves two functions: First, it designates an agent who will be authorized to make medical decisions on behalf of the incapacitated person. Second, it provides guidance to the agent as to the incapacitated person’s preferences regarding his or her health care.