Living Trusts: Fact and Fiction

Living trusts are powerful estate planning tools that can help many people. Living trusts provide certain advantages that are not available with other estate planning devices. Living trusts, all in all, are generally a pretty good idea. They are not, however, a cure-all. Disciples of the living trust abound today. They tout the advantages of Living trusts with the fervor of a television evangelist. Let's separate the facts about Living trusts from some of the fiction that is being advocated.

First, it is necessary to understand the nature of a living trust. Technically, Living trusts are "revocable inter vivos" trusts. If a trust is "revocable," the person who establishes the trust can change all or any part of the trust, so long as that person is competent. "Inter vivos" is Latin for "during life." Assets owned by Living trusts generally are not included as part of the probate process at death. Probate is the court proceeding by which a deceased person's assets are gathered and distributed to his or her beneficiaries.

How is a living trust better than a will?You can also be assured that your wishes will be carried out as you planned, without legal recourse. Wills can be contested in court, while Living trusts cannot.

Is avoiding probate always desirable? In a strict sense, this is fiction. Probate can be an expensive and time consuming process. However, many states have adopted the modern Uniform Probate Code that substantially streamlines the process. Also, there are some situations in which a probate proceeding may be desirable.

Do Living trusts save money during administration of the estate? By avoiding the probate court, Living trusts may save on the associated attorney fees and court costs. However, there are still income and estate tax returns to file and legal administrative and asset transfer work to do. This claim is not fiction, although it is hyperbole.

Do Living trusts save on estate taxes? living trusts do not necessarily save federal estate taxes. Estate tax saving provisions can be incorporated into living trusts. However, those same provisions can be incorporated into a will. Therefore, living trusts do not offer any inherent tax saving advantages.

Are living trusts private? By avoiding the probate process, you can keep the distribution of your assets private. Also, if the trust is funded (i.e. assets have been transferred into the trust before death) the size of the estate can be kept quiet. Note, however, that some transfers, notably real estate, are always public.

Can a living trust help in the event of incapacity? Provided you have either placed assets in the trust before incapacity or a device exists to place your assets into the trust in the event of incapacity. If you become seriously ill or disabled, the designated trustee can step in to handle your affairs without legal involvement, saving the cost and publicity of a guardianship proceeding. Another device, the durable power of attorney, can be used in some cases as a less expensive alternative to the living trust when planning for incapacity.

The living trust is an important tool that provides many advantages. living trusts are not, and never have been, a panacea. It remains important to work with an experienced estate planning attorney and evaluate all alternatives before adopting an estate planning strategy. Setting up a living trust can be simple. Contact me today.