What are the advantages and disadvantages of a Living Trust compared to a will?

A living trust is; his services is anybody's guess.

Of course it all depends on your financial situation and intentions.

Basically, a living trust will avoid probate and attendant costs and lack of confidentiality that are part and parcel of a will. A living trust can also save you on your death taxes, again depending on your situation and intentions. With a living trust, you may also want or need a pour-over will, for example to deal with guardianship of minor children.

Lots of info (basic) on the web; you have probably heard some of this at the dinner.

Note: if you have a lot of assets, a run of the mill living trust attorney is not for you. You need a specialist who knows how to deal with high net worth situation.

Speed is another issue. Asset retitling is as soon as there is a death certificate in a trust, since the details were pre-arranged. In a probate you have the Search for Creditors, Inventory of Assets, Payment of Taxes, and Plan of Dispensing. A couple of these must be approved by county trustee. At fastest maybe three months. At worst, years.

This varies from state to state. Some have fairly simple probate, some, I'm told, are awful. -- Doug

Wills have to go through probate, especially if you have over $100,000 in assets. Revocable (Living) Trusts don't have to go through probate.

A Revocable (Living) Trust is an essential part of your estate planning if you have over $100,000 in assets. You have to title items into your Revocable Trust before you die! Many people are physically and mentally incapacitated before they die, so some additional documents are worthwhile. Laws do vary by state, so seeing a lawyer if you are not sure is a good idea. If you are confident there are do it yourself document creators and websites such as legalzoom.com.

I can recommend going to the library and getting Nolo Press "Estate Planning Basics". It covers Living Trusts as well as other document and you can read it at your leisure, rather than having your $200 an hour attorney tell you the same thing. You can also get it at Amazon.com for $16.50 plus shipping and handling and it qualifies for free shipping with qualifying orders over $25.

Some other documents you may want to consider in your estate plan: Health care directive/living will/declaration Durable Power of Attorney for Heathl Care Final Arrangements Statement Durable Power of Attorney for Finances Will (standard or pour over)

Anybody want to guess what the estate tax exclusion will be going forward from 2011 (default is $1 million)?

This has been hashed out here, and on a few other forums, multiple times - with most posters taking their favorite positions based on their understanding. With the caveat that I'm "in" the business - as a tax specialist and financial advisor - here's what I tell my clients -

A living trust is a way of retitling assets so that YOU don't own them personally anymore. Instead they belong to the "trust" - which you are the grantor of (making it transparent for tax purposes), the beneficiary of (as long as you're still alive) and the trustee of (again, as long as you're still alive).

One benefit of a living trust is that it CAN avoid probate. One problem here is that while it can, it seldom does. Another problem is that it seldom saves any money over the cost of probate.

In order to change the ownership of something after someone dies a personal representative has to open a probate estate with the local court. This process allows for the assets to be inventoried and liquidated if necessary, the creditors listed and paid, and the beneficiaries to get the remainder.

Many people are told to fear probate as costly and time consuming. But for most of us probate doesn't cost any more than the cost of having the trust document drafted and the associated fees of having your assets retitled. For example, here in Maryland if you move a car into a living trust the DMV charges you about $65. You can redeed your home - lender issues aside - for about $300. A good trust document will cost you at least $2,500. So if we assume 2 cars, 1 house and the document the trust will cost you about $3K to set up and fund. That same $3k will also cover the costs of probating an estate in Maryland worth roughly $350K.

Now consider that if the grantor - the person who sets up and funds the trust - misses JUST ONE ITEM a probate estate will still need to be opened. Here in Maryland probate is done through the Orphan's Court and is overseen mostly by the Registrar of Wills. Most of these folks insist on seeing a copy of the trust document and all the assets belonging to the trust. Their position is that they need to confirm that the assets were properly retitled and are being handled correctly so as to not cheat any of the creditors or beneficiaries out of their fair share. So if you miss ANYTHING you may still wind up in probate. Whether you get any real privacy remains to be seen - if the documents are turned over to the probate court they may become part of the public record, however innocently that may happen.

Now some on this forum will argue that you don't have to show the trust document because it is exempt. Maybe they are correct - I won't address that point. I will simply point out that if you are doing this yourself then you likely don't know what the rules are and are likely to do what's asked of you, whether you need to or not. On the other hand if you're using a professional to oversee things they will know - they will also be getting PAID, quite likely a fee very similar to the one they'd charge to probate the estate to begin with.

Now consider that there are alternative ways to title and deed property - without the need for a living trust. You can name ME as a Pay On Death (POD) beneficiary of your bank account. When you die all I need do is walk into the bank office with a copy of your death certificate and they take your name off and put my name on the bank account. You can use a TOD - Transfer on Death - beneficiary to do the same thing with your investment accounts.

You can also go to the bank and name Aunt Rosie as a Courtesy Signatory on your bank account. The account is NOT a joint account, its still all yours BUT now Aunt Rosie can sign checks for you to pay your bills - while you're alive. When you die the POD transfers the account to the beneficiary.

So using a courtesy signator and a POD you can effectively allow access to the account in case you're incapacitated and allow for the money to pass to the beneficiary without the need for either probate or a living trust. And the cost is hard to beat - a few minutes of your and Aunt Rosie's time to go to the bank and sign some papers.

You can also gift ME your home, while retaining a life estate. This lets you live in the home for the rest of your days but passes the house to me when you die - at the adjusted fair market value on the date of death. If you want to move, I'd be legally obligated to sell the house for you and buy you a replacement. There are no gift tax consequences with this since the gift is not completed until you die.

Keep in mind too that a living trust does NOT - let me repeat DOES NOT - avoid any need for estate tax reporting. If there's an estate tax issue before a living trust is in place there will be one after. So you save nothing here.

When is a living trust a good idea - in my opinion, whenever you own property in a state where you or your relatives do not live. The costs of probating a nonresident estate can get costly. So if you live in CA but want ME (who lives in MD) to settle your affairs, the a living trust can be very helpful. Also, if you live in TX but own property in other states it can be helpful. Remember, a probate estate must be opened in EVERY state or jurisdiction in which you own property - including bank accounts, real estate and have vehicles registered.

So, living trusts can be beneficial. BUT they are frequently sold using scare tactics or at the very least over inflated "suggestions" about the cost savings. Bear in mind too that when they are needed - AFTER YOU DIE - is ONLY when WE will find out if they really did accomplish what you thought they would and what you paid for them.

Good luck, Gene E. Utterback, EA, RFC, ABA

Good points.

In California, the statutory probate fee on a $2M estate is $33k. A living trust would be much cheaper to set up.

Not sure if your POD scenarios work here, or many other places.

Using a living trust, a married couple can have some estate tax advantages.

I agree that many of the living trust ads make it seem that everyone should have one. That is not necessarily the case if you don't have many assets.

But everyone I know should have one! houses alone cost a fortune out here! Estate Value Statutory Fee

Thank you, Gene, for the very good explanation.

Frank

Specifically, when a couple has more assets than a single state exemption, the trust can preserve that exemption. e.g. if the exemption reverts to $1M and my wife and I together are worth $2M, if I die first and later she passes, now there's tax to be paid on everything over $1M. The trust can help with that.

A trust can also keep the proceeds of a life insurance policy out of the estate. A shame to pay the premiums on a $1M policy only to find it's all taxed at 50%. That $2000 trust is then worth $500K just for that purpose.

Joe

It should be emphasized that living trusts can be very expensive when the trustee is a professional person unrelated to the deceased. It is my understanding that in that case the trustee is entitled to a substantial annual fee for administering the trust. So even when out of state property is owned, the advantages seem to apply only when you (or your wife, or husband, or brother, etc) administer your own trust.

I should think the costs of keeping up with the laws of different states would be small compared to the costs of paying someone else to do it (especially if more than one other state is involved).

See my direct response to the post you are commenting on. Bypass trust does not need to be intervivos.

The main tax advantage of insurance policies is for income tax, not estate tax purposes. The problem you describe (reducing the gross estate) is not particular to life insurance policies. It applies to any asset.

One can reduce/eliminate estate taxes by gifting assets before they appreciate, and thus stay under the gift/estate tax limits. But for this benefit, the transfer must be a completed gift, i.e. the trust being funded must be irrevocable. (When people talk about "living" trusts, they generally mean revocable, though literally, "living" would seem to mean nothing more than intervivos.)

See, e.g.

Mark Freeland snipped-for-privacy@nyc.rr.com

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Statutory probate fee refers to the amount that a lawyer is _allowed_ to charge, not what the court charges to probate the will (which can also be estate size-based). Legal fees are negotiable; savings may be illusory.

California statutory probate fee is a percentage of the gross probate estate, which excludes anything that isn't probated (s POD/TOD works fine for the purpose of reducing this allowed maximum fee).

Outside of serving as a post-death repository for assets (a bypass trust), do you have other estate tax advantages in mind? If you are referring to a bypass trust, that can be created as a testamentary trust, or funded with a POD/TOD designation. No need for an intervivos, revocable, pre-death funded, trust (aka living trust).

See, e.g.

(first entry - A/B Trust, saying this can be established via will, i.e. testamentary trust, and provides the estate tax advantages I think you are alluding to).

Mark Freeland snipped-for-privacy@nyc.rr.com

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IMO this is a very good thread with lots of helpful information.

Whenever the subject turns to estate planning, I first remind clients/friends that nobody knows what the rules will be when a particular person passes. Heaven knows it is different now than it was a decade or three ago. It is for that reason I tend to take complicated/expensive estate planning with a grain of salt.

Of course, when a person is terminal (death is imminent), estate planning can take center stage.

In Louisiana, a community property state, I can leave my marital assets to my children with my wife having care and custody of those assets under a usufruct arrangement. However this does not cover my retirement accounts.

Frank

YIKES! That is the worst time to be doing estate planning. Well, second worst - the worst would be after death.

How does Internet Banking play into that?

For example, my wife and I have our legal residence in Maine; we also own real property in NH. Our checking/savings accounts are with USAA, which has it's office in Texas.

Does that mean if one of us dies, we would have to open a probate estate in Texas, too?

--ron

I mentioned life insurance only because one one thinks of their assets it's easy to forget it. A couple can carry enough insurance to put their estate over the limit, esp if we go back to the $1M threshold. When I talk to people who think they have no worry about estate taxes, most forget to take their insurance into the equation. To your second point, you're absolutely right, it would not be part of a living will, but an irrevocable trust. Joe

Back in the old days of the early 1900s, when stocks were on the way up, my wife and I enjoyed some good food and drink at a few of those free dinners. And we learned a few useful things about certain investments. But when the time came to sign up for the "services" we made ourselves scarce. I mean out the door fast. And to this day we are glad about that.

Hmmm. So since you were married you were probably in your teens or twenties in the **early 1900s**. Longevity must run in your family! I'm envious. :-)

--ron