Last issue, I wrote about revocable living trusts, which have the primary goal of avoiding the probate process.
They make a lot of sense, so you may wonder why doesn’t everyone use a living trust? Primarily it’s because many people don’t understand what a living trust is. I call it the “last act of love and affection you can give to your loved ones.” Why? Because it makes it easy on the beneficiaries when you pass away. With a living trust, there is virtually nothing the beneficiaries need to do after a death. No probate, no filings, no legal fees, no public scrutiny, no court supervision. At a time when you hope your loved ones are mourning your death, they will not be faced with the added burden of going through the probate process.
Additionally, the legal costs involved in creating and, most importantly, funding the living trust are more expensive than the legal costs involved in creating a will and for that reason, some people opt to use a will.
Why is it more expensive to create a living trust than a will? If you have a will, you will see language in the will relating to disposing of any property held by the deceased, real or personal. No property is usually identified in the will. When the person dies, the PR and beneficiaries have the burden of figuring out what property the deceased owned in sole name that has to go through the probate process. Unless the deceased has left their affairs very well organized, this process itself can be a great burden on the beneficiaries.
The approach to a living trust is much different. When a person goes to an attorney to set up a living trust, that attorney must inquire into all assets held by the person. Every asset is discussed and a strategy to place each and every asset into the name of the trust is then used. A revocable living trust is absolutely useless to avoid probate if it is not properly funded. That means, once the trust is completed, all assets must end up in the name of the trust. Remember, if no assets are held in sole name when you die, there is no probate. In addition, to ensure that Grantors are always protected, regular reviews of the trust and the assets are necessary. As I tell my clients, once you have your living trust set up, you will no longer buy or hold any important assets in your sole name. All assets will be held in the name of the trust.
Proper funding of the trust is critical. For example, if a person owns a house in his or her sole name, a deed must be prepared to deed the property into the name of the person’s trust. There are no transfer taxes or recording fees applicable to transferring a piece of real estate into a revocable living trust. That’s because the trust is “revocable” meaning the Grantor can alter, amend or terminate the trust at any time. This is completely different from an irrevocable trust where no changes can be made and the property placed into the trust by the Grantor is literally given away and cannot be recovered.
If a person has a savings account in his or her sole name, the bank must be contacted to transfer that account into an account in the name of the trust, and so on. Every asset is checked and double checked and different strategies are used for different assets. The process is time intensive for the attorney and support staff and therefor costs more in legal fees than a will.
By the way, never pay for a living trust that does not include the funding of the trust. If you, as a client, are required to complete all of the forms and actions necessary to transfer assets into the trust, chances are you will not follow-up and, without proper funding the trust, the trust will be useless to avoid probate and you will be wasting your money.
What about the contents of a living trust? As with a will, there is nothing you cannot address in a trust. The trust will discuss what happens when the Grantor dies, just like a will. For example, if you want your assets to go to your children but not when they turn 21, you can use language that will hold the assets in trusts for the children until they are older and hopefully wiser in their use of the assets. These matters can be addressed both in a will or a trust. However, the living trust offers one important protection not available in a will. If a living trust is created by a married couple, for example, both husband and wife are the trustees of the trust. If one of them becomes incapacitated, the other can serve as sole trustee and use the assets of the trust to protect the other.
There is so much more to say about living trusts. For more information, go to my website at LegalStriegel.com or use the Internet to educate yourself about “revocable living trusts.” The best approach all of us can take to protect ourselves is to educate ourselves.
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.