Should I have a Living Trust?

A Living Trust is one of four ways by which your property can pass to your heirs upon your death without going through probate.

An Explanation of Probate

Before talking about avoiding probate, let’s look at what probate is. Probate is a legal process that involves filing a deceased person’s will with the probate court, taking an inventory and getting appraisals of the deceased’s property, paying all legal debts, and eventually distributing the remaining assets. The purpose of probate is to create an orderly system for paying the known debts of the deceased, distributing assets, protecting heirs from unknown creditors, and creating a forum to resolve disagreements among the executor and heirs. While probate appears to serve a good purpose, it takes time (in Florida, the guideline is 12 months) and costs money for attorney’s fees and court costs.

Four Ways to Avoid Probate

The four ways by which assets can pass at your death to your heirs without probate are the following:

1. Living Trust. A Living Trust is a separate legal entity which you create, in writing, to own your assets. While you are alive, you retain control. At your death this Trust continues to hold your assets (i.e. it outlives you), with control passing to the Successor Trustee who you have named. The Trust tells the Successor Trustee what to do with your assets, and the Trust assets are disposed of without being involved in probate proceedings.

2. Joint “Survivorship” Ownership. Property which is held by a husband and wife (“Tenancy by the Entirety”) or by unmarried persons where “Joint Tenants with Right of Survivorship” appears after their names, automatically becomes wholly owned by the survivor when one of the owners dies. A death certificate will need to be recorded in the public records for real estate. For non-real estate assets, proof of death will need to be provided to the bank or other institution holding the asset.

3. Life Estate. Life Estates are a variation of the joint ownership idea described above. A Life Estate means the person involved owns it for as long as they live (without sharing ownership during their life) but then that ownership is extinguished upon death and some other named person owns the asset. Life Estates are normally used only for real estate and are created when a grantor conveys real estate “to Jane Doe, reserving to John Smith a life estate.”

4. Beneficiary Designation by Contract. Your life insurance, mutual funds and other investments are contracts with the banks, insurers and investment companies. Often, these companies will offer a beneficiary designation on the application, signature card or other paperwork which opens the account. If you die, these companies will honor your beneficiary designation as a matter of contract, distributing the insurance proceeds or other monies direct to your beneficiary, outside of probate.

Estate Taxes

The above alternatives to probate do not avoid estate taxes. If your estate (or the combined estate of yourself and your spouse) is over $1,000,000.00, during 2002-03, you should review separate strategies for reducing these taxes.

Should I have an Estate Plan?

Yes! An estate plan is a review of your assets and how they should pass to your heirs. An estate plan can be as simple as placing all of your assets in joint survivorship ownership or spending $150.00 in legal fees for a will.

Should I have a Living Trust?

A Living Trust is rarely a bad idea. The question is whether a Living Trust is the best way to accomplish your estate planning. The good features of a Living Trust are:

1. Distribution of your assets occurs more quickly after your death than with probate.
2. Legal fees after your death are reduced (but usually not eliminated).
3. The Living Trust and Successor Trustee will be authorized to manage your assets and pay your bills if you are incapacitated.
4. If you will subject to estate taxes, a Living Trust can be used to implement some estate tax avoidance strategies (such as the “A-B” or “credit shelter” trust arrangement).

The drawbacks of a Living Trust are:

1. Living Trusts cost more in legal fees to prepare than a will.
2. For a Living Trust to totally avoid probate, all your assets need to be titled in the Trust, which requires ongoing monitoring.

An additional concern about Living Trusts is that they are promoted as part of scams to overcharge seniors or to obtain financial information to sell other financial products, such as insurance annuities. In 2000, the Federal Trade Commission issued warnings about certain Living Trust promoters. For this reason, you should only deal with established lawyers and law firms on the subject of a Living Trust.

Whether you should have a Living Trust will depend on your individual circumstances and personal views. Usually, younger people or married persons do not have Living Trusts. Older, single persons are more likely to choose to have Living Trusts, as are persons in deteriorating health. An attorney can help you evaluate whether a Living Trust belongs as part of your estate plan.

Leonard Wilder is available at the firm to answer the questions of those in South Florida on Living Trusts by phone consultation at no charge (Phone: 954-467-7744).

Important Note: This article is for general information only and is not intended to give any specific legal advice or opinion which should be sought from an attorney. The facts of any particular situation need to be examined before deciding on a legal course of action.

Copyright © 2001 by Tucker Tighe P.A. All rights reserved.

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Phone: 954-467-7744
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E-mail: law@tuckertighe.com