Lins Law Group Blog

Five Good Reasons for a Living Trust.

Many people read that they need a Living Trust but don't have a clear grasp of why they need one. There are at least five good reasons that a Living Trust is a great estate planning vehicle.

1. Probate Avoidance. By creating a Living Trust and transferring your assets into the Trust, your family can avoid having to probate those assets at the time of death. This can save significant time (often in excess of a year) and expense (often as much 3% of the estate) involved in probating one's estate.

2. Estate Tax Savings. Living Trusts, when set up for spouses, can facilitate in maximizing use of the unified credit (presently $2 million per person) and the unlimited marital deduction. This can avoid estate tax on the first $4 million of a married couple's estate.

3. Controlled Distribution. A Living Trust allows the party giving the gift to control the amount and frequency of the distributions. This way, rather than a beneficiary getting a distribution all at once, the distributions can be spread out in time and amount. This can be especially desirable if there are concerns about a beneficiary's ability to handle an inheritance all at once.

4. Confidentiality. The administration of a Living Trust is not a public process. Probate, on the other hand, is generally a public court proceeding. This means that beneficaries of the probate estate can be determined by anyone. It can also mean assets of the estate can be discovered by third persons. By having assets distributed through the Living Trust, no one other than the beneficiaries and the Trustee know the details of the distribution plan.

5. Care in the Event of Disability. If you become totally incapacitated or incompetant, usually a guardianship or conservatorship will have to be established. This involves a court declaring you to be incompetant. The guardianship then falls under court oversight and can cause considerable expense. If you have a Living Trust and become incompetant, your successor trustee can take over your care without a public declaration of incompetance and without a court proceeding. This saves embarassment, inconvenience and considerable expense.

So what's wrong with probate?

A client came in the other day and said that his mother had died but that her estate should be easy since she had a Last Will and Testament. Little did he know that having a Will does not avoid probate, all it does is give the probate court a "road-map" to follow in administering an estate. Issues like appointment of an executor or personal representative, appointing a guardian for minors and designating beneficiaries are all addressed in a Will. However, a probate proceeding still must be opened in order to appoint the executor, to appoint the guardian, transfer assets titled in decedent's name, etc.

So what's the problem with probate? There are a litany of reasons that probate is worth trying to avoid. These include: 1) Probate is very slow and in some cases can take years to complete; 2) Probate is expensive, sometimes costing up to 3% of the estate's value (on a million dollars, that would be $30,000!); 3) Probate does not maintain confidentiality about beneficiaries and assets; 4) Probate requires court oversight; and 5) Probate does not provide protection to a person until they die (it does nothing in the event of disability or incapacity).

So what is the alternative to probate? Effective estate planning using Living Trusts, beneficiary designations, pay-on-death designations, etc. all minimize or avoid probate. More on those on another blog. For more information, see:

www.linslawgroup.com