At WM Law, we like to use the KISS principle when it comes to developing estate plans. That is, we like to set up an estate plan in the simplest form that can achieve the goals of our clients. Consequently, most of the estate plans that I create don’t include a trust. I have set up plenty of trusts, of course, but I have found that most people don’t actually need trust. I feel that trusts add unnecessary complexity to an estate plan if they are not needed, plus, even more concerning, they create a false sense of security. If I can create an estate plan without a trust that still accomplishes the client’s goals, that’s what we do.
The recommendation to forego a trust oftentimes surprises people. One of the most common concerns I hear is that the client owns real estate in another state, oftentimes a vacation home. They have heard that if you own a property in another state, then that property requires a trust. Sometimes, that is exactly the case, but that is due to the laws of the state where the real estate is located, not just because it is in another state. In order to avoid having to open a probate estate for real estate, we prepare a beneficiary deed (also called “transfer on death” deeds) for that property. Beneficiary Deeds are a relatively new concept. It allows the owner of a piece of real estate to transfer the property to a person or entity of their choosing immediately upon the owner’s death, without any sort of court intervention. The concept of the beneficiary deed goes back to the 1980s, and they were initially called “Ladybird Deeds”. Ladybird deeds operate a little differently than a true beneficiary deed, but the basic concept of setting up an automatic transfer of property to avoid probate is the same.
The concept of a deed to automatically transfer property on death that avoided probate gained popularity quickly. State legislators began to introduce legislation to approve the use of beneficiary deeds. However, as of this writing, only 31 of the 50 states have approved beneficiary deeds. One of the first things I ask in an initial estate planning consult is whether the client has real estate in another state. If the answer is “yes”, then I immediately determine whether that state allows beneficiary deeds. If it does allow them, then we can generally move forward without the need for trust. However, if that state does not allow beneficiary deeds, then we probably will need to create a trust and transfer the ownership of that out-of-state property into the new trust. While creating a trust isn’t as simple as using a beneficiary deed, it is only a minor speed bump along the road to creating an effective estate plan.