A highly publicized Estate Planning tool is the (Revocable) Living Trust. This is a document created during your lifetime to hold your assets in a name other than your own, known by various names: Living Trust; Declaration of Living Trust; Deed of Trust; or Revocable Living Trust.
The Living Trust’s main function is to side-step probate – partially or entirely. Probate is the Court administered process of finalizing affairs and distributing property after death. When the pros and cons of a Living Trust are weighed, it is clear the choice is not simple. Ideally, a Living Trust allows some or all of your assets to be transferred to a different entity other than you – a trust which holds title to the assets and has a trustee to manage the assets. You can be your own Trustee, or you can name someone else. Upon your death, the trust assets pass immediately to the beneficiaries, so as to bypass the Court, court costs, and attorney’s fees for probate.
Avoidance of attorney’s fees is one reason people find Living Trust’s attractive. Attorneys typically charge fees for estate administration on a percentage basis. An average fee may be 5% of gross estate assets. The most common problem I see with Living Trusts is cost. The costs for a Living Trust commonly run between $2,300.00 and $3,000.00! While that usually covers preparing the Living Trust, wills, powers of attorney, and maybe a deed to a residence to transfer title to the Trust, that is a very large expenditure to make while keeping your assets intact. The cost to set up a Living Trust is considerably more than the cost of a Will, and drafting a Trust and transferring assets is more complicated than preparing a Will. You must pay the cost for a Living Trust from your assets now. When you choose probate, all costs and fees are paid from your Estate – usually after some or all assets are liquidated. The cost factor often comes down to paying a fee now, or later.
Settlement time for trusts versus Estates is also an issue. The total time to probate an estate ranges from a few months to longer if there are complications such as needing to sell real estate. Ideally, a Living Trust transfers your assets “immediately” upon your death. If some assets are held in the form of stock, or mutual funds, the Trustee may have to file the Trust with the Court to establish the trustee’s authority to transfer funds to the beneficiaries. This can result in additional costs and time delay.
Another argument is that Living Trusts allow privacy. Proponents state that when you probate an estate, you must file an Inventory of the Decedent’s assets and their values with the Court “for anyone to see.” Realistically, how many readers have ever pulled a file from the Register of Wills Office for any purpose? Also, in many cases, Living Trusts end up being filed with the Court to certify the Trust, or because there is a dispute between beneficiaries. In Pennsylvania, the assets are reported for Inheritance Tax purposes, placing the wealth on record. Also, under a recently enacted Pennsylvania Statute, Living Trusts must be advertised once the person dies. This additional requirement doesn’t mandate that the beneficiaries are listed just that creditors, if any, can put in their claims. If the Trustee fails to advertise, the Trustee can be liable for the debt if all assets have been transferred to the beneficiaries.
A final concern is Pennsylvania inheritance taxes and even Federal Estate taxes if your assets exceed $2,000,000.00 under current law. A Revocable Living Trust will not escape or avoid these taxes.
If you wish to establish a Living Trust, and the purpose is to save paying attorney’s fees when you die, check with an attorney to see what he or she would charge. There are other estate planning tools, such as transferring some assets, “in trust for” bank accounts, or adding other’s names to assets prior to death, which will reduce attorney’s fees, executor’s fees, and not incur the high cost of establishing a Living Trust. Often, attorney’s fees for probate are negotiable. With careful planning, you can have your estate pay reasonable costs and fees after your death. The proper choice between a Will or Living Trust examines the composition and value of your estate, and tax consequences.