Setting up a revocable living trust for the purpose of avoiding probate has become a popular estate plan in recent decades. The consumer movement to avoid probate began in the 1960’s with a book by Norman Dacey and has not abated since that time. Many clients prefer to set up a revocable living trust to make estate settlement easier for their beneficiaries.
Unfortunately, there are many misunderstandings and half-truths about avoiding probate. There are some advantages but some asserted advantages are misleading or not correct. There are also some disadvantages to avoiding probate. Any estate lawyer will tell you that there is much more litigation with estates now due to the lack of oversight with trusts and other property that is not subject to the probate court’s supervision. You will hear differing opinions on use of a living trust to avoid probate. Some persons advocate for them stating everyone should have one. Others believe there is no need to avoid probate. In reality, the truth is somewhere in the middle. The explanation below sets forth the advantages and disadvantages of using a living trust to avoid probate.
1) Attorneys fees for setting up a trust will generally be lower than fees for probate.
2) The privacy of your estate will be preserved by using a living trust. The probate inventory is a public record open to inspection by anyone.
3) Avoiding the delay of probate and immediate distribution of the estate are commonly expressed advantages. However, the trustee cannot distribute the whole estate to the heirs until estate taxes and all other debts are paid. If the trustee does so, he/she will be personally liable to pay these debts out of their own funds. However, the lack of time constraints and probate requirements will certainly be avoided and the trustee in most cases will be able to complete the administration much sooner and with less work.
4) The cost of an executor’s fee may be avoided if an executor would have been appointed who would have charged a fee. In most situations, an heir or family member can be appointed executor on the condition that he/she serves without compensation.
5) A guardianship proceeding in Probate Court may also be avoided. However, an inexpensive power of attorney may also accomplish this same objective.
6) Avoidance of estate taxes is often implied as an advantage of a living trust. Although a living trust can be part of an estate plan that eliminates estate tax, this can also be accomplished with a will. Therefore, estate tax savings is clearly not an advantage of a living trust.
1) There will be present costs to create the trust and transfer costs for putting the assets into the trust.
2) There may be additional complications and requirements associated with everyday transactions once you have transferred title to all your assets into the trust. Banks, stock brokerage companies etc… may require various forms to be filled out, a copy of the trust and other assurances that the trustee is authorized to take certain actions. However, living trusts have become more commonplace in recent years and most companies can now handle trusts without too much complication.
3) Upon death, the transfer to the heirs is not automatic. Various legal documents will be needed to fulfill legal requirements. Appraisals are needed for income tax purposes for certain assets. Although the administrative burden is less than probate, it is certainly not absent.
4) The trustee is not accountable to a court and the supervision of the Probate Court is not available. Some of the functions of probate are for the executor to report to the court all receipts and disbursements, an accurate appraisal of assets, payments of bills and distribution to the heirs. If the executor misapplied some money or did not distribute according to the will, the court would probably be aware of this and take action against the executor. A trustee of a living trust is typically not accountable in this fashion and the heirs may have no way of knowing if estate funds were misappropriated. Of course the trust beneficiaries have a right to sue, but this will be more costly and involved as opposed to filing an appropriate motion in Probate Court.
Each person must weigh the above factors, consider your circumstances and desires, and make an informed decision.