Since the 1960s, when Norman Dacey touted his book, “How to Avoid Probate,” so called “living” trusts (more properly, “revocable trusts”) have been incredibly oversold to people who do not understand what they are buying. Well intentioned folks are lured by slick advertisements to attend free seminars often presented by lawyers who are little more than salesmen. These promoters’ prey on the public’s lack of real knowledge and their fear of “Probate.” They recommend living trusts for almost everyone as a miracle solution to a virtually non-existent problem. Source: Trustlawyer.com
As I drive around town in the morning, I hear non-stop ads for “Living Trusts” with the line “if you have assets of over 75,000 and want to avoid probate you need a living trust! “
Do you need a living trust? I’m no lawyer, but the short answer is probably not. For those who promote the use of living trusts, the general logic is that this is the single, best document that will help you avoid costly probate proceedings when passing assets to your heirs. And while this technically may be true, in most cases there are easier, less expensive ways to avoid probate.
These are oversold! Very few people need to have a Living Trust. Unfortunately, at least in my experience when you go see a lawyer for estate planning, they will ask you some questions and then recommend the same thing to almost all people.
Like the old saying “If all you have is a hammer, everything looks like a nail”. Many lawyers have a hammer and your estate plan is the nail!
With that being said, there are situations when you really do need one.
for intstance, owning property out of state is a typical reason.
Rather than “get into the weeds” as to why you don’t need a trust let’s look at a real-life example: Mine
I have been told I “need” a living trust by several lawyers. When I ask why, they come up with half-truths and non-sensical reasons like, “well what if you didn’t like your daughter in law and you died, she would get half of your money.” First it is not true. The inheritance my son gets is separate property.
Or this one is a favorite. “What if before you die, your son dies, and you don’t have the wits to take him off the will or adjust accordingly.” There are many other non-reason reasons you will hear so you must be ready to stand your ground.
So, I could have a living trust and designate a trustee. I must pay $1000- $3000 to have it set up by a lawyer. But the front-end costs are nothing compared to the unwinding process the trustee must go through to finally get the money to the proper beneficiaries. This can be in the 1000’s or 10’s of thousands. I have never personally known a person that had a trust to be able to administer it with out the help of more lawyers!
So, I can get the trust. Or I do not get the trust. I didn’t get the trust. Why?
Please remember that named beneficiaries on a beneficiary form for an investment account, bank account, retirement plans, and life insurance and annuities, trump anything in the Trust and Will. So, no matter how much you have spent on a trust the beneficiary form you filled out trumps it. And many people go about life not knowing this.
- Here is how I am set up. I have a large retirement plan and a small one. Both have named beneficiaries. I also have an annuity. Same thing, my sons are named on the beneficiary form.
- I have a large non-retirement account for which we have it set up as “Transfer on Death” (TOD). I have my bank accounts set up as Pay on Death (POD) different name but the same idea.
- I have a beneficiary deed set up on my house. This will make the house the property of my two sons upon death.
That is it. The whole simple plan to avoid probate and save endless attorney fees.
All these methods will go right past probate and directly to my sons. How long does this take? Not long. As soon as Commonwealth (our broker dealer) is notified of the death (by presenting a certificate of death) the checks can usually go out.
Now I will have no probate, no hassles, no extra lawyers’ fees to explain to your trustee how the trust works and what they must do. I am currently working with a client who is trying to unwind a living trust. It has been months, which is typical. The legal fees continue to mount and not a dime has been distributed.
Please call if you have questions or need a referral to a great attorney.
See you soon,
Craig