Dear Michael: We went to an estate planning seminar put on by a local law office. They brought in a speaker who made quite a presentation with slides about the benefits of living trusts. It sounds like these trusts are head and shoulders above just a will. However, they did sound like they could get very expensive in comparison to a will.
Is there really that much greater benefit to a living trust versus a will?
– Been To A Seminar
Dear Been To A Seminar:
Most of these seminars tout the fact you can use living trusts to save on everything from probate costs to estate taxes and everything in-between. After you’ve sat through one of these professional presentations, you wonder why everyone doesn’t have a living trust instead of a will.
First of all, this probably isn’t the first time you’ve heard of something that is “too good to be true.”
In the case of living trusts, the only thing that a living trust might be able to do is avoid probate costs if the conditions are right. Probate costs are made up of your legal debts upon death including but not limited to: Costs of internment, medical bills or costs relating to your death, costs of a service attending your death, any income and/or estate taxes due and legal fees for the settlement of your estate.
Most of these seminars promote you can save on all of these by using a living trust. However, the only thing that could perhaps be mitigated by having a living trusts would be the legal fees in settling your estate.
When you die, especially on the second death between spouses, all of your liquid assets – checking accounts, CD’s, and proceeds from the sale of assets – are placed into an account – your estate account. If you’re working with an attorney, most of the time, the attorney’s office will set up an account for you so you, and they, can access these funds for use.
With a living trust, whomever you nominate as your trustees would do these same things thereby, in theory, eliminating a lot of legal fees, correct?
However, you need to know whether or not your trustees feel comfortable handling all of these duties normally handled by an attorney.
To determine this, get a sample document from the attorney of the living trust in its entirety, which is a fairly lengthy document. Take this to the person you feel would want to be your trustee(s) and let them spend a week or so reading through this document.
If the person comes back to you and has more questions than answers, then you might have a problem. If you can’t answer those questions for them, then you really have a problem, because the next person in line, if you’re not here to answer these questions, is the attorney. Being s/he is the person who wrote this document to begin with, they may be the only person able to decipher it. It’s a pretty complicated legal document – far and away harder than a will.
If that’s what happens, then you know the benefits of a living trust – avoiding legal fees in your estate – just went out the window because here you are back at the attorney’s office getting billed. And guess which one of the “legal debts” listed above comes in number one in costs on average? If you don’t have a taxable estate, that cost would be legal fees.
Why would you pay extra now for a large legal document that only the attorney who wrote it can understand the document later?
On the other hand, if your trustee is fairly competent at reading legaleze and doesn’t have a problem, then this would be a great money saver to your estate.