Living Trusts

Please note that a Living Trust is NOT a substitute for a Will. The tax advantages of living trusts are generally available through Wills. Revocable Living Trusts DO NOT ELIMINATE the need to pay inheritance or estate tax, or personal or estate income tax. They do not freeze out your creditors.

A Living Trust does not generally eliminate probate delays, since most delays involve paying creditors, paying state and federal taxes, and getting clearance or closing letters from the tax authorities. Life insurance and social security benefits might also need to be resolved. Sometimes lawsuits will be prosecuted or defended. Living trusts also do not avoid attorney's fees. An attorney is not required for probate, but is desirable; it is just as desirable for living trusts.

Living Trusts are advantageous, overall, only in a relatively small number of cases, primarily to ensure continuity in running a business, and occasionally to avoid ancillary proceedings when real estate is owned in other states. In general, living trusts are no panacea, do not avoid taxes and fees, and do not eliminate the need to have a will. Living trusts also, obviously, are expensive to properly fund and to ensure that assets are correctly retitled.

It is often stated that living trusts provide an element of privacy that is lacking for wills. However, recent court decisions have held that if a trust beneficiary petitions the Probate Court for an accounting, then both the trust instrument and the accounting become public documents in the court file. In other words, a revocable living trust does not guarantee privacy. In short: The expense of a Living Trust is justified only in a relatively small number of cases. Suggestion: Get a second opinion!

I once saved an elderly couple $3,500.00. They asked my opinion on whether they needed a living trust that was touted to them at a seminar. I asked what their goals were. They told me, and then showed me their current Wills. The Wills met their goals in all respects. I charged them $50.00 for this opinion. They thanked me, and left with a net savings of $3,450.00. Again: before spending lots of money, get a second opinion.

Finally, an excellent law review article about living trusts has been published. See "The Living Trust: Fact vs. Fiction", in Vol. 15, No.1-2 of the Quinnipiac Probate Law Journal (2000). I will show a copy of the article to any client who wants to discuss living trusts -- no charge. This article dispels many of the myths associated with living trusts.

There is a local law firm that regularly offers living trust seminars “free of charge.” Their ads state that AARP, in 1989, condemned the probate system as slow and costly. Perhaps AARP did do that, but that doesn’t make the charges true. The Connecticut probate system predates the Revolution, and has helped thousands of people far more quickly and inexpensively than the Superior Court would. The ads also fail to state that, even with a living trust, you will also need a will: that is only mentioned after you are already “hooked.” Further, the ads imply that a living trust provides tax savings, while neglecting to mention that a will does the same thing.

As it happens, the AARP Magazine issue of November/December 2007 contains an article by Barbara M. Whelehan, starting on page 28.  That article makes it absolutely clear that, except in states with difficult probate procedures, such as Florida or California, living trusts are appropriate only in certain situations.  Those generally are: an ongoing business to be run, with no clear successor in place; real estate in more than one state; considerable wealth requiring management during your disability.  The AARP article makes clear what all lawyers know: a will costs less than a living trust, and in nearly all cases is just as good, and certainly less cumbersome. 

 

It’s your money.

 

And it’s your decision. All I ask is that you get a second opinion before committing thousands of dollars and then finding out that you needed a will anyway.