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REVOCABLE
LIVING TRUSTS
by
Sandra L. Chaff, Esq.
Recently, SeniorLAW Center has received a
number of calls from seniors who have been contacted by companies
selling revocable living trusts.
Potential customers are told that the revocable living
trust will save them money (probate costs and attorney fees),
distribute their assets more quickly after their deaths, and keep
their financial matters private. These trusts often are promoted
as preferable to wills for distributing property after death.
However, for most individuals with modest, simple estates,
a revocable living trust is an expensive and unnecessary
alternative to a simple will.
This article will explore the characteristics and claims of
the revocable living trust as compared with the will.
The revocable living
trust (hereinafter "living trust") is an entity you
create while you are alive and into which you transfer and hold
all your titled property (e.g., your house, securities,
automobile, any property for which there is a document of title or
ownership). A trust
must have a trustee -- one who is responsible for managing
the assets (usually one names oneself as the trustee); a successor
trustee to distribute or manage the trust property after your
death; and beneficiaries of the trust (people or
organizations to whom you wish the assets to be distributed
eventually). Because
the trust is revocable, you can end it at any time.
If all your titled assets are placed in the trust, your
estate will not need to go through probate to distribute those
assets -- they will pass under the terms of the trust you have
created.
A Last Will and
Testament is a document you create while you are alive that
directs how your wish your property, both titled and untitled,
distributed upon your death. If titled property
is passing under your estate, your will must be probated (to probate means, literally, to prove).
In Philadelphia, one probates an estate by taking the will
to the Register of Wills, paying the requisite fees, and following
the prescribed routine for distributing property, paying
creditors, and filing tax returns.
Unfortunately, some unscrupulous companies and individuals
are engaging in deceptive practices to sell living trusts to
people who do not need them. These
practices include excessive pricing, overestimation of cost and
length of probate, misrepresentation of tax advantages, and
high-pressure sales tactics.
To be sure, the revocable living trust (also known as the Inter Vivos Trust) has a place in the panoply of tools available to
the conscientious estate planner, but it is not, as it
has been promoted, the incredible panacea that will save your
heirs thousands of dollars and hours in dealing with your estate
after you die.
To assist you in deciding whether a revocable living trust
is an estate planning tool you may wish to explore further, let's
review the claims often made on its behalf.
COST
SAVINGS
Probate
Costs: One of
the benefits of the living trust is said to be a savings of
probate fees. This
may indeed be an advantage in some jurisdictions, but in
Philadelphia, probate costs are relatively low. Currently, the probate fee for estates valued at between
$50,000 and $200,000 is $225.
Given that the average cost to have a living trust drawn up
by an attorney is $1,000 - $1,300 as compared with $200 - $400 for
a simple will, saving a few hundred dollars in probate costs for
your estate later, while spending many hundreds of dollars more
now, seems less than cost effective.
Attorneys
Fees: Won't
the complexities of probating a will require your executor to hire
an attorney, whereas if all your property is in a trust, your
trustee need only distribute it according to your wishes?
When a person dies, whether there is a will, a living
trust, or no document at all, somebody has to handle the affairs
of the estate, from paying the funeral and burial expenses and
bills, to changing the name on utilities or property, and filing
tax forms. If the
executor of your will is likely to hire an attorney to take care
of some of those matters, then that same person functioning as the
trustee of your living trust also is likely to hire an attorney to
assist with formal transfers and distribution.
Taxes:
While there are certain types of "living trusts"
married couples whose combined estates total over $675,000 should
consider for tax savings purposes, merely owning property in the
name of a revocable living trust of the type we are discussing
will not save a penny in taxes.
TIME
SAVINGS
Living trust assets may
be distributed immediately after death by the successor trustee,
while assets that pass under a will cannot be distributed until
the probate process is concluded, which can take up to a year or
more. However, in
many cases assets that pass under a will also may be distributed
within a short time after death.
If the estate is complex or the debts are great, it may
take longer for assets to be distributed through the probate
process, but the built-in time limits of the process may actually
work to the advantage of the estate.
For example, the waiting period that state law requires
before assets may be formally distributed under a will allows
creditors of the deceased person time to make their claims.
When that period has expired, a creditor is barred forever
from making a claim. In
the case of a living trust, if a creditor finds out about the
death only much later, that claim can be made upon the trustee
long after the property has been distributed -- unlike under the
probate process, there is no formal period after which the
creditor's claim is forever barred.
PRIVACY
Finally, it is said
that because a will entered in probate is a public document, one's
affairs are not kept private.
A living trust, on the other hand, is not a public
document, as it does not have to be filed with any government
entity. Therefore, the details of the estate are kept from public
view -- they are also kept from the view of anyone wishing to
monitor the actions of the trustee in handling the distribution.
WHEN
IS A REVOCABLE LIVING TRUST A GOOD IDEA?
If you are leaving
assets to minor children, a living trust has advantages over
outright distribution in a will, or a testamentary trust (i.e., a
trust that is set up in a will). If you own real estate in a
state other then Pennsylvania, when you die that real estate must
pass through the local probate process of the state in which it is
located. This may
mean probating in several states.
If the real estate is held in a living trust, however, no
probate is necessary to transfer title because the trust, not the
decedent, owns the property at the time of death.
In summary, there may
be good reasons for establishing a revocable living trust.
A living trust can be a flexible, beneficial estate
planning tool that allows you to manage your assets during your
lifetime and gives you some control over assets even after death.
It is not, however, an "easy way out."
For most individuals with modest, simple estates, a
revocable living trust is an expensive and unnecessary
alternative to a simple will.
It can cost a substantial amount to set up, and time and
energy to maintain. Most
critically, it should be set up by an attorney or financial
planner who understands your financial situation and goals.
Elders
can discuss a legal problem or get information by calling
SeniorLAW Center’s telephone intake line 215-988-1242 Mondays through
Fridays, 9 a.m. – 1 p.m., or coming to our center city offices, Mondays
through Wednesdays, 9 a.m. – 4 p.m.
Most issues can be addressed initially over the phone.
For general information, please call us at
215-988-1244.
Sandra Chaff is an attorney with
SeniorLAW Center, and Coordinator of the Pennsylvania SeniorLAW
Helpline. This article was originally published in 2000.
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