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To Trust or Not to Trust?

By Susan Piette, Esq


(Page 1 of 2)

 

In discussing estate planning with my clients, I am regularly asked about living trusts or, more precisely, “revocable living trusts.”  Many people have heard of them and readily admit they really don’t understand the marketing information that they have received in the mail, heard on the radio or at an event on this subject.  Further, I have had clients come to see me with their three-inch binder in hand, declaring the contents as their living trust, only to confess that they are not really sure why they had the living trust prepared or what is actually in the documents in the binder.  Generally, they indicate that the trust was pitched to them as a way to avoid some sort of tax on their estate after they died.

So, to trust or not to trust?  Why would someone want a revocable living trust?  Before answering that question, let’s discuss what a revocable living trust is.

A revocable living trust is a written agreement designating someone to be responsible for managing your property.  It's called a living trust because it's established while you're alive. It's "revocable" because, as long as you're mentally competent, you can change or dissolve the trust at any time at your own discretion for any reason.  You, as grantor of the trust (the creator of the trust) often retain the right to income and principal.  Typically, a living trust becomes irrevocable (cannot be changed) when you die and the assets in the trust are distributed pursuant to the terms of trust instrument.
 

GOOD REASON or NOT SO GOOD REASON for a Living Trust? 

  1. Avoid inheritance taxes?  NOT A GOOD REASON because revocable living trusts save no inheritance taxes at all compared to an estate plan with a will.  Assets held in a revocable living trust are subject to the same inheritance tax as assets owned in one’s name which pass to one’s heirs or beneficiaries via a will.
     
  2. Avoid probate? NOT A GOOD REASON because probate (general term for the court-supervised process by which a decedent’s will is proven valid or invalid) costs in Pennsylvania are moderate compared to other states and the cost of probating one’s will is almost always considerably less than the costs associated with a living trust.  Additionally, living trusts many times involve probate fees because it is frequently necessary to have a “pour-over” will for assets not in the trust, subjecting the estate to probate fees anyway.
     
  3. Save time in accessing assets?  NOT A GOOD REASON because gathering assets, liquidating assets, paying debt/expenses and making distributions vary from case to case, depending on the type of assets under both the administration of an estate or distribution of assets under a trust.\

  4. Keep personal affairs private? Could be a valid reason if a person does not want the contents of their will or the inventory of their estate made a public record. Unlike wills that are filed with the county Register of Wills, trusts are not required to be filed publically. However, a living trust could be part of a public record if a trustee or a beneficiary demands court approval of the accounts of the trust.

  5. Save legal fees? NOT A GOOD REASON because in almost all situations, you will pay much more to have a revocable living trust established as the core of your estate plan than to have a traditional will prepared. The complexity and size of one’s estate will dictate the cost for both, but typically, living trust estate plans are marketed at a flat rate of several thousand dollars. Clients, holding their “Living Trust” binders, confirm these costs regularly.  

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