DECEMBER 12, 1994 VOLUME 2, NUMBER 23
Older residents have been besieged for the past decade with promotions for Revocable Living Trusts (which always seem to be Capitalized). What are they and are they always good things? Should everyone have one? A list of the advantages and disadvantages might include:
Avoiding Probate. If all your assets are held by a trust there will be no estate to take through the probate process. Of course, the same would be true if you designated beneficiaries on all your accounts, held property as joint tenants with right of survivorship or simply gave it all away during your life, too. And probate is neither as expensive nor as lengthy as opponents describe (listen to the horror stories closely–you will note that they tend to be old stories and from a handful of states with old-fashioned probate laws, like California).
Minimizing Estate Taxes. If your estate is over $600,000 in value (including life insurance) and you are married, a proper trust will help minimize your estate taxes on the death of either spouse. However, if your estate is less than $600,000 there will be no tax anyway. And a trust is not the only way to take advantage of estate tax savings; a proper will may accomplish the same result.
Protecting Against Incapacity. A trust is wonderfully helpful in managing your assets if you later become incapacitated. Of course, a durable power of attorney can accomplish the same result.
Controlling Your Estate After Death. If you feel strongly about how your estate will be used after your death, a trust may be just the thing to ensure your wishes are followed. For example, you may want to leave money to your children, but not let them touch the principal. Or you may want to require your heirs to abstain from alcohol in order to receive benefits. A trust can impose such conditions on the recipients of your estate. Of course, a will can include the same kinds of restrictions.
Should You Have a Trust?
Trusts are a great estate planning tool. The variety and flexibility of the instruments is legendary. But the biggest drawback to living trusts is usually the cost of preparing them. Typically, a trust may be as much as ten times the cost of a comparable estate plan based on a will and durable powers of attorney. Computer software, non-lawyer preparers and form books may be less expensive, but they typically do not explore the full range of benefits or dangers of trust planning.
Some Rules of Thumb
You should seriously consider a living trust if:
- Your estate is over $600,000
- You own real property in more than one state
- You are specifically concerned about future incapacity (for yourself or a spouse)
- You have a disabled child or beneficiary
- You wish to delegate management of your property to a professional
- You own significant life insurance policies
- You wish to control the use of your property closely after your death
Otherwise, a trust may simply be more estate plan than you need. Of course, you should consult your lawyer to determine whether a trust makes sense for you.