Anyone do a will instead of a trust?
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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes@Jeff S. Post I did on BP. "Self Storage: So you just died, did you send everyone to hxxx?"
There was no reason, but the day I hit 30, I realized it was “ME”. Everyone around my family was doing fine, work was great, it was a nice day. Just for some reason, I realized I was the person in charge of my life. Its not like I all of a sudden matured. Paid my way thru college, top of the class, top 1% job, only got drunk twice in my life, etc, etc.
My realization was, I was it. Now I didn’t do anything with that thought. From that point on, until I was 50, I knew literally I could go through Mountains, jump over them, dig under them, go around them and stop Run away trains by hand. There was no obstacle in my life that I could not overcome.
And then it hit me. I ran into an obstacle, that I had no clue how to deal with, it could not exist (in my world), and the experts had no clue (from my point of view). No more Invincibility.
We are all at different points of our lives, perceptions of living into eternity, Invincibility, or just lack of thought on the subject. If your “there” and are aware of your lack of invincibility, please keep reading.
So you just Died. The following are actions not to put your Family through Hxxx. (Also Vendors, Customers, Bankers, employees)
A. “Will” or “Trust”?- Do you want things to go through Probate for several months or seamlessly go through a Trust with no stoppage in operations or control? Without a business, you might not care if your below a certain Dollar level or asset types that don’t deteriorate. Various discussion points- Bucket Trust, rename all of your assets to include the Trust, etc, talk with your attorney.
B. Power of Attorney- you can have this made specific to different aspects of your life. You may have a business partner who you want to be able to make decisions on your behalf for the Storage business, but have no say over your Personal life.
C. Bank Accounts “POD”- Payable on death, So you just died and who is going to pay the bills? This will automatically allow a person to access the funds and support the ongoing business. You probably have you and your spouse on the account already, so put somebody that is likely not traveling or living with you, in case both spouses pass at the same time.
D. Life insurance- not tax deductible, tax free proceeds. This is more about risk, comfort zone, lack of knowledge and stage of investment. With our fast growth we have taken loans out. All of the locations cash flow very well, so there really is no risk from losing a “wage earner”. It is more about taking pressure off the family members who will end up with the property. Also to cover any estate taxes or debt restructuring if they arise.
Where the major danger comes in, is if your in the middle of a development and your the main developer. The other family members only know how to run an existing facility. This is where you can lose a lot of money, if you have to sell the property and not complete the build out.
We identified three areas of risk and they are all on three different time tables. 1. Ongoing debt payments for existing units., 2. One location in Rent Up Phase., 3. One location in development phase and then Rent Up phase.
Per our advisor we took out three separate Term life policies. That way as the risk diminishes you can drop one policy at a time. If you had just one large policy covering all three risks, you would have to cancel a policy and renew. You have gotten older, any new health issues that arise, and the need to go through the review process again, may change your access and cost of an insurance renewal. Don’t get to exact figuring out your coverage needs, it is really cheap, go for the higher number.
E. Living Will; End of Life- This is more for applying medical treatment or not under certain circumstances to continue your life support, while you are incapacitated. Just added this so you have a complete package of estate issues. By this point you should not be in control of any business, unless you were incapacitated due to an accident or sudden medical issue.
F. Medical Power of Attorney- this allows someone to be in charge of your medical treatment if your incapacitated. Not so much a business impact, but wanted to keep the list complete.
G. Facilities Management- worst case, no one knows how to run or has the time to. Develop an “Info List” with all contacts and passwords. Identify ahead of time a Management company or local Realty company who you have vetted to manage the business. Have them identified on the list.
H. What does a storage facility look like 6 months after you have died? You go down to 70% occupancy from 95%. 40% of your customers are behind. Some customers haven’t paid in 6 months. No one can find the contracts. 5 of the units were yours. All of your systems are on paper and no one has kept up. Trash has been thrown over the back fence and the neighbors want it fixed. Weeds are everywhere. I come in and offer to pay 50% of the value. Ended up not buying your property. It takes about 3 to 4 months to get a location like this transitioned over to a management system and cleaned up, through auctions. Your investment value has greatly deteriorated since there was no transition plan.
So are you taking action; or are you sending everyone associated with you under the bus?
“Start small and Make Your Big Mistakes Early”
82 Replies
- 5yGeorge SkidisPro MemberRental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
I have settled wills and trusts in the counties of Madison and Saint Clair in the State of Illinois. I am not an attorney and I don't play one on television.
Here is what I have experienced. If the individual dies with a will (referred to as "Testate") anything that requires a deed or a title be issued must be probated. A good executor can go through probate without Paying for the services of an attorney. It is just a matter of filing the appropriate paperwork. Don't know how to do that hire an attorney. The executor needs "Letters of Office" issued by the local county court house after the death in order to sign the needed papers.
And yes the term testate comes to us from the ancient practice of holding and swearing by the family jewels.
If the individual dies without a will that is referred to as intestate. Then everything with a title must be probated.If the dead persons assets are less than $100,000 the executor of the estate can file "An Affidavit of Small Estate" and avoid a lot of the legal hurdles. They will still need Letters of Office.
If the assets with deeds and titles are owned by a trust none of the above apply. The trustee, IF acting within their duties and responsibilities, can arrange the sale and transfer the proceeds of the sale directly to the beneficiaries specified in the trust. The Grantor (person who funds the trust) should check the trust once a year or so to must make sure the beneficial Interest and successors interests are up to date. The Grantor "can" be the beneficial interest. But without successor beneficiaries the trust could be payable to the estate of the Grantor and the proceeds of the sale could be probated.
Probate: A legal term which roughly translated means: Pay 10 to 20 percent of everything you own to the courts and an attorney when you die.
Your goal should be to avoid probate.
Lee Phillips (Legalees.com) and Mark J. Kohler (Markkohler.com) are attorneys who sell to investors. Lee Phillips has a great asset course he sells with both forms and audio discs. Kohler has a great book that is out of print "Lawyers are Liars." They both have great insight into estate trusts,
However, we are real estate investors. Illinois has a unique twist called a Land Trust. A land trust should not own cars, jewelry or cash. It is designed to hold real estate. These work like a regular trust but they are designed to hold real estate. Bill Bronchick (bronchick.com) sells a course on Land Trusts.
In my opinion many attorneys overcharge for their services. That is why I have LegalShield to answer my legal questions.
- 5yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Jeff S. I think there would be issues if the trust didn't fund the farm. We looked at it and will harvest some trees to make the trust last. It basically will help us so we are not shelling out for something we don't go to often. Helps decrease conflict. Not sure about rental properties in a trust, I know people do it but I can imagine it poses it own set of management challenges.
@Jerel Ehlert appreciate your summary one of the biggest danger doesn't even have to do with the trust setup. It has to do with the executor of the will or trust manager. I have seen people where I know why the lawyer is charging so much. You couldn't pay me to deal with the person managing the estate, they are just too crazy/time consuming. So will or trust the best planning anyone can do is to pick someone who is up to the task of dealing with the estate.
@Jerel Ehlert appreciate all the good information. Of course on here there is some good ideas on this forum and some that are inaccurate. I see it as a brain storming process where people throw stuff out there to get people thinking.
Obviously there are good lawyers and there are bad ones. Both you and another lawyer mentioned using wills where many people just plainly state only use a trust. My experience with a will and probate was that it was not a big deal and the fees were about $4,000 to the lawyer as she recommended using a will and not a trust because the estate was not complicated.
There are 2 couples in their 80's I know one having a beach house (second home) where their lawyer is saying to sell and pay capital gains before passing, and the 2nd couple with an investment rental were told by their financial advisor to not sell so they are stuck not being able to sell and get out from under it. They want to sell it but the advisor says no so they don't. So who calls the shots, financial planner or lawyer?
@Colleen F. that is the issue who will manage things and as it has been shown here there are lots of potential issues going on with people making decisions on others behalf.
- Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes5y
@Jeff S. Yes, different advice to two different clients in seemingly similar situations can seem confusing. The difference in advice might pivot on a single fact that is different.
One thing to keep in mind is that probate/estate laws can be VASTLY different between states. And not just probate. Property law, I know for certain, is fundamentally different across the states. I'm only licensed in Texas, but @George Skidis stated the threshold for "small estate" in IL is $100K. In Texas, it is $75K but excludes the homestead. Texas also has other requirements to qualify.
Another factor in estate planning is the client's tax situation. Investment property is treated differently under the tax code than a 2nd residence. There may be factors like stepped-up basis to consider.
So, while there are broad categories or guideposts, what works for you necessarily needs to match the specifics of your situation.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes5y
I had KKOS do my living trust and I think it cost me $1500. If your net worth is under $1M I believe its $1000. That is inexpensive, typically I see them run closer to $2500 - $5000. Also depends on how complex but that pricing noting is very high in my mind.
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@Jerel Ehlert So, while there are broad categories or guideposts, what works for you necessarily needs to match the specifics of your situation.
Thanks again for the professional responses. I am looking forward to learning about trusts and what will work in my situation.
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