Revocable living trusts are all the rage in estate planning these days. When I meet with new clients who have done some online homework and discussed estate planning with family and friends beforehand, they seem to believe that living trusts are what all the cool kids have in their estate plans. There are certainly some “cool” aspects to living trusts, but that doesn’t necessarily mean that they are the right estate planning tools for everyone.
Here are the important benefits of using a living trust, instead of a last will & testament in your estate plan:
Living trusts are a tool for sparing assets from being dragged through a lengthy probate process upon your death.
Living trusts are private documents, contrasted with last wills & testaments which become public documents upon your death.
If you are suddenly out of commission due to injury or illness, there is a mechanism in your trust document that allows someone to immediately take over the management of your trust assets for you until you are back in the saddle.
If you own real estate outside of Connecticut, then the benefit of probate avoidance doubles since you can avoid probate administration in two states, not just Connecticut.
And now for some of the downsides and “myths” about living trusts that you should be aware of:
At least in Connecticut, you will not save a penny in probate court fees. I know that doesn’t make any sense but it’s true. Even if you avoid having any assets go through probate, someone still needs to file an estate tax return with the probate court on your behalf. The return must report the value of all your assets (probate and non-probate assets) and the court will charge a fee based on the total size of your estate.
Since a trust document is much more comprehensive than a last will and testament, the legal bill for preparing the trust will be significantly higher than the fee for doing a will. Perhaps twice the legal fee.
There’s more legwork involved in using a living trust as the centerpiece of your estate plan. After you sign the trust, you then need to identify assets that would otherwise get dragged through probate and re-title them into the name of the trust (accounts, real estate, etc.). Otherwise, you will not achieve the probate avoidance you were aiming for. This is not the case with a last will and testament which requires no re-titling of assets.
In order for the living trust approach to work well, you need to continuously ensure that you have no probate assets. In other words, if you acquire new real estate or open new accounts after establishing your living trust you need to make sure the new assets are titled in the name of the trust. If you fail to do this, your family may end up having to deal with probate upon your death despite your best efforts.
I know some practitioners push these living trusts pretty hard, but honestly, it’s not necessarily the right estate planning tool for everyone. It’s worth sitting down with an experienced estate planning attorney to go over your particular situation and decide whether it’s worth the extra cost and all the re-titling of assets that you would need to do.
DISCLAIMER: This blog does not offer legal advice, nor does it create an attorney-client relationship. If you need legal advice, consult with a lawyer instead of a blog.
