The fact that late North Carolina basketball coach Dean Smith left $200 each to about 180 players he'd coached over the years is all over the press. The small payouts come not from Mr. Smith's will but from his revocable living trust — an estate planning tool that also merits attention (if not photo-documentation on social media).
Revocable trusts are an increasingly popular estate-planning tool used, in part, to keep estate details private. Wills are public documents, available to anyone who wants to search public records. Trusts are private — the only reason Mr. Smith's gesture went public is because players put photos of the letters and checks on social media.
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"I don't think he would have wanted to draw attention to himself," says the trustee of Mr. Smith's trust, Tim Breedlove. "That was his whole life and legacy. He preferred the attention to be on others and the players."
In that case, a revocable living trust was a good move. The "revocable" part of the name means that if you change your mind and want to dissolve the trust at some point, you can do so without a problem. Assuming you don't, whatever assets you transfer into the trust don't go through probate when you die, so they aren't frozen (and aren't available to be seen by the public).
You still need a will, though, to account for any assets left outside the trust, such as a car, says Mike Foltz, a principal at Balasa Dinverno Foltz. There's even a specific kind of will, called a "pour-over" will, that is designed to take everything left outside the trust and pour it in. "The trusts aren't really designed to be in place of a last will and testament, but they become the main estate planning document," he says.
Trusts are more expensive than standard wills. Mr. Foltz says that drafting a pour-over will, a revocable living trust as a main planning document, and setting up various powers of attorney could cost from $2,000 to $4,000 per person, or more.
There are also ongoing costs for a trust, which are the hours it takes the trustee to administer. Trustees can charge what the state determines is a "reasonable hourly rate." And trusts can go on for a long time, since the assets usually stay in the trust for the beneficiaries. The surviving spouse can have the trust continue until the kids reach a certain age or stage distributions to the kids over years.
One hassle of these trusts is the legwork people need to do to get all their accounts and real estate in the trust's name while they're alive.
"Many people never finish getting their property into the name of the trust," says Brad Wiewel, of the Wiewel Law Firm. "Then they die and have to go through the probate they'd hoped to avoid because their name is still on the asset."
A revocable living trust isn't for everyone. Doctors and lawyers in Illinois, for example, might want to think twice. When a
revocable living trust is used as the main document for an estate, creditors have two years to make claims, beyond the typical six-month period allowed when a will is the primary document. "If you have a lot of personal liability, you probably want the last will and testament as your main document to cut off claims of the creditors," says Mr. Foltz.
