IS A LIVING TRUST RIGHT FOR YOU?In 1966, a financial planner by the name of Norman Dacey wrote the book How to Avoid Probate. In his book, Dacey explained how a revocable trust (also known as a living trust, loving trust, family trust or a combination of the preceding adjectives) can be used to avoid probate. Since 1966, the use of a revocable trust to plan ones estate has become very popular. Despite the popularity of the revocable trust, revocable trusts are not without their potential problems. Recently, a new book was just published entitled, Living Trust, Living Hell: Why You Should Avoid Living Trusts. In this book, the author describes problems that revocable trusts can cause. Based on the different views regarding the use of a revocable trust, what really is best?
First, it is important to understand that there is no definitive answer as to whether a trust is necessary. Another estate planner explained that asking whether a revocable trust is good or bad is like asking whether a wrench is good or bad. It depends on what you are trying to accomplish. A trust is just an estate planing tool. Whether it is good or bad depends on your needs and desires.
Although there are many factors to consider in determining whether a revocable trust is right for you, here are a few of the more significant factors:
- Avoiding Probate.
It is true that a properly funded trust avoids probate. If the goal of the client is to avoid probate, it is critical that the trust be properly funded. To "properly fund" a trust, title to all assets and beneficiary designations for insurance policies and retirement accounts must be reviewed. A properly funded trust avoids probate because the owner of the assets (generally termed the trustor, settlor, grantor or trustmaker in the trust document) conveys ownership from him or herself (in his or her individual capacity) to him or herself as trustee of his or her trust. Probate is avoided because for "probate purposes" the deceased person does not own assets but rather the trustee of the trust owns the assets. The trust document itself will specify who are the successor trustees. Therefore, upon the death of the person contributing the property to the trust, no probate is necessary to clear title. The successor trustee listed in the trust will assume ownership (as trustee) of the trust assets and then must distribute the assets the way the trust document specifies. It is critical to understand that a revocable trust only avoids probate if the assets have been properly transferred to the trust.- Out of State Property.
A revocable trust is especially useful if you own real estate in another state. Real estate in another state generally requires a probate proceeding in that state to convey title to the deceased's beneficiaries. If you live in one state but own real estate in another state, your beneficiaries may be required to commence multiple probate proceedings. This situation can be avoided through the use of a revocable trust by signing a new deed that transfers title of the real estate to the trust.- Management of Assets.
A revocable trust can be useful to manage assets. While you are living, you may want to transfer your assets to a trust and then appoint a professional trustee to manage the assets. You could have a professional involved in managing the trust assets while retaining the power to terminate the professional trustee's services.- Avoiding Court Appointed Conservatorship.
A properly drafted trust should provide for the management of trust assets in the event the person contributing the property to the trust becomes incapacitated. This would avoid the need for a court appointed conservator or guardian for financial matters. It should be noted that a durable power of attorney may provide similar benefits. However, a durable power of attorney is not always recognized by banks and other institutions, and generally no instructions on how to use the power are given in the document.Possibly, one of the biggest problems with revocable trusts is that they are being oversold. Many people are attending a seminar, hearing the "evils" of probate, and paying a fee to have the legal issues that result at death "magically" resolved because they purchased a revocable trust. Often, the benefits of a revocable trust are exaggerated or misstated. Seminars or presentations designed to "scare" one into purchasing a trust by citing the "evils" of probate are a disservice. Many of the participants purchase a trust without understanding the importance of properly transferring their assets to the trust. If assets are not transferred to the trust, benefits related to avoiding probate and conservatorship proceedings are not realized. Additionally, many of the presenters of these seminars do not practice law in the community and provide little client-attorney contact in preparing the documents.
In conclusion, a revocable trust is an important estate planning tool. Depending on your individual situation and desires, you may decide to use a revocable trust as your principal estate planning tool. As in all estate planning decisions, being educated about your choices is key in deciding whether a revocable trust is right for you.
Jeffery J. McKenna
Attorney licensed and servicing
clients in Utah, Nevada and ArizonaCopyright © 1999-2010 Barney McKenna & Olmstead, P.C.
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