TO TRUST… OR NOT
By Tim Barkley. August 2016.
“Do I need a living trust? I’ve heard a lot about them, and my brother said I need to get one. He has one, and he says it helps avoid probate. What is probate, anyway?”
A living trust is a useful tool for many situations, but is not needed in every estate plan. Just as a hammer is sometimes, but not always appropriate (think of using it to clear your windshield of ice), so a living trust is not always indicated. Like the hammer on your icy windshield, a living trust might be overkill. There might be an easier way to accomplish your goals and meet your needs and those of your loved ones.
A trust, whether a living trust or any other kind of trust, is an agreement between three people, or between people filling three roles – the “grantor” or “settlor” who sets up the trust agrees with the “trustee” to manage “something” for the “beneficiary.” If you are setting up a living trust as part of your estate plan, you are usually the grantor/settlor, trustee and beneficiary – you agree with yourself to manage your stuff for yourself. And this writer usually offers clients that if you don’t like how you’re managing your assets, you can always sue you. But nobody else can, as long as you are alive and competent.
A living trust is a “fictitious person,” like a corporation. Just like a corporation can own property, enter into contracts and make distribution to its owners, so can a trust. Just like you can control the property owned by the corporation of which you are the sole shareholder, so you can control the property owned by the trust you set up. If you cannot manage your corporate affairs, a succession of officers steps in to run the business. In the same way, if you need help with managing your trust, your chosen successor trustee can step in and administer the trust assets for your needs.
When you die, the property in your corporation remains in the corporation, and someone else steps up to manage the corporation according to its charter and bylaws. In the same way, when you die, the property in your trust remains in the trust, and someone else whom you have chosen manages the trust and the property in it according to the terms of the trust document, usually for the benefit of your loved ones.
So you really lose no control over your assets when you set up a trust.
If you need a trust for other purposes, a living trust can be a good foundation for your needs for asset management for others after your death. If you have a minor, spendthrift or disabled child, a dependent parent or other loved one, or some other special situation, a trust can hold assets for their benefit after your death without subjecting those assets to the claims of their creditors or medical care providers. Your need for the trust has nothing to do with “probate.”
If you are married and have a large estate subject to federal estate tax, a trust can help you avoid taxes. If you have charitable intentions, a trust can help you realize those intentions while benefiting yourself or your loved ones. And because a living trust is not public like the probate process, your affairs remain confidential and private.
These purposes can be realized by trusts contained in your will, but then the assets of your estate will be subject to the process of probate upon your death. Probate is the process of court supervision of your estate, to be sure that your will is followed. If you have no will or living trust, probate is the process by which the Court ensures that the state statutory default provisions regarding distribution are followed.
Probate is not necessarily a bad thing. If you have a will or no estate plan at all, probate is the way your loved ones get clear title to your property. In Maryland and most surrounding states, probate is a relatively simple process. Yet it requires numerous and detailed court filings, takes time, and is a public process.
The entire probate file is open to public review at any time. Anyone can find out what you had when you died, what it was worth, and who got it.
Probate costs money. The cost to probate your estate, if your chosen or court-appointed administrator proceeds without a lawyer, can be quite low. If they have to hire an attorney, the cost can be three to five percent of your estate or more. Because your administrator generally has a full-time life already, he or she will often need the services of professional counsel to make sure that the required filings are accurate and timely.
Whether these costs of probate justify the up-front fees associated with a living trust is a personal decision. If you don’t need a trust for one of the specific purposes mentioned above, a living trust can still provide benefits, but at a cost. In addition to the increased legal fees to set up the trust, you will generally spend more time in trust setup than in simply executing a will.
In many cases, then, a living trust is clearly indicated. In some, it is clearly not. Make sure your legal counsel discusses the benefits and costs before you make a decision.
Next article: Probate Avoidance On a Budget
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
Wills & Trusts | Estate Planning | Probates & Estates
Elder Law | Real Estate | Business Planning