Do You Really Need a Living Trust? (Step 1 - Part II)
November 7, 2007
Now that we have a general idea of what a living trust is…do you really need one?
Many estate planning lawyers will tell you that essentially everyone would be better off with a trust instead of a will, but I disagree. You need to remember that there are some downsides to having a living trust. First, your legal fee will be higher. Even for simple trusts you’re probably looking at a four-figure fee instead of a three-figure fee for a will. Then there is some legwork involved in regards to “funding” the trust (or re-titling your assets), which is a step that you do not need to take with a will. This can be a significant time commitment if you have a bunch of accounts spread out among many different financial institutions.
So when is the higher cost and extra work warranted?
First, I would say that if you own real estate in another state (many of my clients have a condo in Florida or a cottage on the Cape) then the need for a living trust is nearly a given. The reason is that if you die without a trust then your family will have a “double probate” situation…a full-blown probate process in Connecticut and the other state. This is an administrative headache that you should try to avoid at all costs.
Second, if keeing your estate planning private is a priority then a living trust is the best way to go. Marilyn Monroe’s Will is all over the Internet for everyone to see because a will is a public document after you die. Literally, anyone can walk in off the street, go to the probate court and ask to see a copy of your will without giving a reason why. Trusts are private documents.
Finally, if you have a relatively small and straightforward estate then going through probate shouldn’t be a big deal, regardless of the bad press that the Connecticut probate court system has received over the last few years. If you have a large and complicated estate then you should at least consider setting up a living trust.
Please remember the following important facts about trusts: (1) even if you have a fully-funded trust, upon your death your successor trustee will still need to file a few documents with the probate court, including an estate tax return even if no tax is due, (2) a simple living trust, with no credit shelter planning, does not avoid estate tax, and (3) even if you have a trust the probate court will still be entitled to charge a probate fee based on your gross taxable estate, which most of my clients are unpleasantly surprised to hear. In other words, living trusts do not avoid probate court fees.
Hopefully this post and the previous one has given you a better idea of what trusts are and how they work. But you should not determine whether you need one or not until you sit down and discuss them with an estate planning attorney.
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