Living Trusts

Living trusts have long been promoted in books and seminars as the cure-all for problems related to probate and to caring for your family after your death.  Trusts can indeed solve a lot of problems and ease the process of passing property to the next generation.  But they can also create their own problems, and the difficulties and costs of probate are often exaggerated in order to drum up new trust business.


What is a living trust?

A living trust is a revocable trust agreement that you fund during your life with all or certain of your assets, including investments, savings, home and personal and household belongings.  A trust is a form of ownership where the trustee owns and manages property for the beneficiaries named by the creator of the trust.  You would be the beneficiary of your trust during your life.

In most cases, you will also act as the trustee and retain management over your property.  At your death, the property can continue to be held in trust or be immediately distributed by your successor Trustee as you direct.


What are the advantages of a living trust?

The living trust, if properly administered, will accomplish the following goals:

1.          Avoid probate.  The probate process can be time-consuming, and can also be an unnecessary expense.

2.        Privacy.  Probate records are public, with your Will and your assets open to inspection.  A trust avoids probate and is therefor private.

3.         Management.  In the event of your incapacity, your trustee can manage your assets as you direct.  Without a trust, your family will have to bear the time and expense of going to court to have a conservator or guardian appointed.

4.         Silence Questioners.  Probate entitles your next-of-kin and creditors to receive notice and gives them the opportunity to object to your Will or the actions of your Personal Representative.

5.         Flexibility.  A trust can often accommodate more of your wishes than a Will can.  This can be important if you want to control the use of certain estate assets after your death.  Complicated post-death arrangements are best handled in the form of a trust.


So, what’s wrong with a living trust?

It may appear at first that a living trust is in fact for everyone.  But consider the disadvantages:

1.         Expense.  It costs money to create a living trust.  This might save estate money down the road, but the savings may be less than the cost of setting up and funding the trust.

2.         Effort.  To be effective in avoiding probate, the trust must be funded with all of your probate assets.  This means changing the title to real estate, your car, all bank and investment accounts, and even assigning personal belongings to the trust.

3.         Alternatives.  There are less expensive and easier alternatives to accomplish the same goals, especially for a smaller estate.  For example, you can avoid probate by holding assets in joint names with your heirs or placing them in “in trust for” or “payable on death” accounts.  You can provide for asset management in the event of your incapacity by executing a durable power of attorney.

4.         Unanticipated Problems.  Trusts sometimes don’t accomplish their purpose because of a lack of information about how they operate.  People often forget to put new property into the trust.  Also, if your home is placed in trust, it will lose its statutory protections against creditors and the senior tax break.

5.         No Tax Savings.  While special trusts can eliminate estate taxes, living trusts generally don’t do so.  If you have a taxable estate, your trustee will have to prepare an estate tax return whether or not you have a probate estate.

6.         Testamentary Trusts.  If assets are left to a spouse in a properly drafted trust created under your will they will be protected if he or she ever applies for MassHealth (the old “Medicaid”) for a nursing home.  Trusts created during life have different rules that require that trust funds be spent or distributed before the surviving spouse will be eligible for MassHealth.


What should you do?

Living trusts can be important tools for improving estate management.  Whether one is in fact appropriate for you depends on your individual circumstances, and on how important it is to you to avoid probate.  Don’t allow yourself to be “scared” into a living trust by stories about the horrors of probate.  In most cases, it’s not a nightmare.


Contact us today for a free consultation.