Does a Living Trust Make Sense in 2011?


Does a living trust make sense?

The term ‘living trust’ is tossed around a lot in the estate planning world and means different things to different people.

Clients and prospective clients sometimes believe that a living trust is necessary to ‘avoid probate’ and to ‘avoid estate taxes’.

Some attorneys believe everyone needs a living trust, no matter what the circumstance.

Both of these assertions are incorrect.

Living trusts ARE a will substitute that allows you, a trustee, to place your assets in a trust, and remain in control of those assets while you are living. The living trust allows you to provide detailed instructions upon how the assets will be distributed upon your death. The living trust can last for years and allows you to give what you want, to whom you want, when you want. For instance, once you pass away, you could instruct the person who takes over as trustee for you to pay your daughter a small sum annually and provide for your daughter for her health care or education needs at anytime.

Living trusts do NOT help a family avoid estate taxes or inheritance taxes. Actually, living trusts can help reduce federal estate taxes if you are affected by the tax (which most people aren’t today), but a Will can do the exact same thing. Therefore, if using a living trust only to save taxes, this is simply an incorrect reason to use a trust. Living trusts today provide a great mechanism for planning through generations… tax saving is not a consideration for most clients.

Regarding probate… Any asset placed within a living trust avoids the probate process. But to completely avoid probate, you must re-title all of your assets into the name of the living trust, and must do so anytime you acquire new assets.

Does it make sense to avoid the probate process? If you own property only in Pennsylvania, you might be better off allowing your estate to be probated. Probate in Pennsylvania is relatively straightforward, although there are several considerations and reasons that you may wish to avoid probate even in Pennsylvania. Sometimes, administration of your estate can occur more smoothly if you have a fully funded living trust. Some people like the idea that they will never need to publicize their will, or deny the government even a small fee. Call it the American spirit!

Another consideration in avoiding probate is that for many clients, at least half of their assets have already avoided probate because the asset, perhaps an IRA or an annuity or a life insurance policy have beneficiary designations. That means those assets go directly to those beneficiaries without probate. Same goes for any jointly held asset (joint with the right of survivorship).

Does a living trust make sense for you? Make sure when you are doing your estate plan that a living trust is at least discussed. It may or may not make sense for you depending on the circumstances.

Call for your complimentary consultation today at (215) 706-0200 to find out if a living trust makes sense for you.