Pick up any newspaper and you might find an advertisement warning readers that writing a Will may be one of the biggest mistakes they can make. “It’s true”, the advertisement might exclaim, as it goes on to detail the horrors associated with settling a Will. Fortunately, the advertiser offers a simple solution: the Living Trust. That’s right, all you have to do is purchase Living Trust forms for $19.95 and use them instead of a Will. These Living Trusts are not only being sold through these do-it-yourself forms, but they are also being touted by newsletters and the popular press as the best way to structure your estate. These Living Trusts are not some new invention, but to read these ads, you might think they have just discovered the secret to life.
In its most basic terms, the promoters of the Living Trust are suggesting that you transfer all of your assets to the Living Trust while you are alive. You or you and your spouse are the trustees of the trust and manage the trust assets for your own benefit. You can change or cancel the arrangement at any time. In sum, while you are alive nothing has really changed except that your assets are technically owned by the Trust, rather than by you as an individual. All of the supposed benefits of the trust come into fruition when you die. The promoters state that your assets automatically pass to your beneficiaries without the delay or expense of probate. The Living Trust also claims to ensure privacy and save thousands of dollars in attorney’s fees. Finally, most of the ads also mention how the Living Trust will save on estate taxes. It’s as if those hawking the Living Trust have found the magic elixir to cure all your ills, pick the kids up from school and deliver the pizza.
Unfortunately, when you cut through the sales pitch, the reality is that the average person doesn’t need one. That’s not to say that the benefits of the living trust aren’t desirable. They are. It’s just that the Living Trust isn’t for everybody as the promoters are claiming. Rather, the living trust is just one tool to be considered when planning your estate. Sometimes it is the best choice, but often, other options are better.
For instance, a married couple doesn’t need the Living Trust to avoid probate. They can avoid probate by owning all of their assets jointly with rights of survivorship. In Pennsylvania, this type of ownership also means that there is no inheritance tax to be paid on the death of the first spouse. As such, many married couples in Pennsylvania need not even consider a Living Trust while they are both still living.
Next, avoiding probate may be something worth doing in some states, but in Pennsylvania, the probate process need not be overly complicated or prolonged. There can be as little or as much court supervision as the family desires. There are court filing fees and fees paid to the executor and the attorney. The court filing fees are set by law, but are quite modest. The fees for the executor and attorney are not set by law. Where a family member serves as executor, they quite often waive their right to compensation. With respect to the attorney’s fee, the key is that it is must be reasonable and should be explained and agreed to in advance. This is the case regardless of whether a Will or Living Trust is involved. Moreover, now that Pennsylvania has adopted a version of the Uniform Trust Code, the procedures that take place when one dies with a Living Trust are essentially identical to those that are required when one dies with a Will.
On the issue of taxes, the Living Trust offers absolutely no tax benefit over the Will. The Living Trust being promoted is a revocable trust, which means you can change it at any time. Since you have the ability to make changes, the tax law views it as if you were the owner and, therefore, the tax treatment is identical to property owned outside of the trust.
The sad part about all of this Living Trust hype, is that the good reasons for using the device are usually lost in the marketer’s smoke screen.