Living Trusts

A Living Trust is a written document that sets up a new entity (the Trust) and can direct how assets you deliver to that Trust will be handled during your life and, like a Will, a Living Trust can also direct how assets in the Trust will pass upon your death. The person responsible for administering the Trust is called a Trustee; the person appointed by the court in charge of administering the Will is called an Executor or Personal Representative.

It is always best to consult with an attorney who has experience helping people with estate planning when considering whether a Living Trust is appropriate for you and your family. You and the attorney can discuss your estate planning goals, review your situation and then decide how best to accomplish your goals. Making the accomplishment of your estate planning goals the most important objective will ensure the best choice of tools, whether it is a Will or a Living Trust.

Facts versus Fiction :

Increasingly, people are being solicited to have Living Trusts. Often, people are led to believe that a Living Trust is the only way to accomplish things or terrible things will happen unless a person has a Living Trust. Much of what is being said simply is not true.

Here are some of the questions you should ask when considering whether to use a Living Trust:

  • With a Living Trust, do I still need a Will?

A Living Trust governs only those assets actually delivered to it. Most people who establish a Living Trust transfer the title of all of their assets to themselves as Trustees of their Living Trust; however, any assets not so transferred, will need to be administered by the probate court (Orphans' Court) unless the asset is jointly-held with another person or the assets bears a beneficiary designation. The Orphans' Court will look to your Will and take into account your written intentions. If you die intestate (without a will), State law, not your intentions, will govern. So, yes, even though you may have a Living Trust which directs the distribution of your estate upon your death, it is advisable to also have a Will (typically referred to as a Pour-Over Will) to direct the probate court to "pour-over" any assets which are outside the Living Trust into the Trust.

  • What is the cost of a Living Trust vs. a Will and how much are probate fees?

Today, probate fees in Erie County for an estate of $1 million are $1,000. That's a lot less than what you'll pay for a Living Trust. Besides the probate fees, the bulk of the expense of an estate administered through the probate court is for the assistance of an attorney, tax accountant, appraiser and other professionals, as well as the fee which can be charged by the Executor. Because much of the same work has to be done after the death of a person who utilizes a Living Trust as is done in an estate administration, the costs are about the same if the Trustee needs to enlist the assistance of an attorney and other professionals. A Trustee is also entitled to charge a fee. Most people who advocate the use of a Living Trust claim they do not have to pay an attorney to administer the Trust as they would if the estate passes through probate. Make sure to specifically discuss this with the attorney who drafts your Living Trust.

And probate comes in two varieties: death probate (referred to above) and living probate (also known as a Guardianship). Will a Power of Attorney help you avoid a Guardianship? This is a critical question to ask the person advising you about your estate plan.

  • Will a Living Trust save Federal Estate Tax or Pennsylvania Inheritance Tax?

Whether your assets pass under a Will or under a Living Trust, these taxes, if due, must be paid. 

  • Will a Living Trust assure that my heirs receive more money, more quickly, upon my death?

With or without a Living Trust, bills get paid before heirs receive distribution and legal requirements cannot be avoided. While some may claim that a Living Trust will assure that your heirs receive money more quickly upon your death, the fact is that assets have to be collected and often sold; debts and taxes must be paid and a Living Trust does not change that. Since the enactment of the Pennsylvania Uniform Trust Act in 2006, both the Executor and the Trustee receive legal protection from potential claims when assets are distributed; however, the laws can seem complicated to the lay person and it is advisable to specifically discuss this with the attorney who drafts your Living Trust.

  • Does having a Living Trust make things more complicated for me now and for my heirs after I die?

Simply having a Living Trust will not avoid probate. Only a fully-funded Trust will avoid probate – having just one asset titled outside the Trust can result in probate. Funding a Living Trust is transferring the title of an asset from you as an individual to you as Trustee of your Trust. Fully funding your Living Trust involves the formal transfer of all title in real estate, vehicles, bank and investment accounts and other assets. If the intent is that everything pass under a Living Trust to avoid probate completely, this has to continue as new assets are acquired. Self-help packets and the mass of paper and forms that solicitors of Living trusts hand out seldom are understood, and people often forget to take important actions as a result. Make sure to specifically discuss this with the attorney who drafts your Living Trust and ask whether the attorney will charge a fee each time you seek guidance when acquiring new assets after initially establishing and funding your Living Trust. 

If you own real estate located in another state, delivering the title of that real estate to a Living trust may avoid difficulties with probate laws there. However, most states have some sort of Small Estate Administration, which reduces the time and cost of probate, but they differ on what exactly qualifies as a small estate. Estates under $25,000 in Pennsylvania qualify for an expedited probate process.

Focus on Your Objectives

With the increasing number of citizens utilizing Living Trusts, many states have adopted the Uniform Trust Code to facilitate the use of the Living Trust in Estate Planning. Pennsylvania adopted the Uniform Trust Act in 2006. But even in the midst of the popularity of Living Trusts, there still seems to be quite a bit of misinformation in the marketplace. Many articles have been written on the subject, but many people still find it difficult to decide whether a Living Trust is for them or not. There are advantages and disadvantages. To be sure, never attempt to prepare a Living Trust yourself – always seek the assistance of an attorney who has the requisite knowledge and experience in both the drafting of Trust documents and a solid track record in advising those who have been named as Successor Trustees after the death of the original Trustee of the Living Trust.

In trying to separate the facts from the fiction, the truth is that no one but you can decide which is the right estate plan - a Will or a Living Trust. And the only way for you to decide is to be fully educated. No matter if someone is telling you a Living Trust is good or bad, make sure they are qualified to discuss Living Trusts. Unfortunately, those who will try to mislead will also be less than forthcoming about their expertise and their bias regarding Living Trusts, Wills and probate. This is not to say that a Living Trust never is a good idea. As with everything else, defining and accomplishing your objectives is most important. If you consult with a lawyer, he or she can help with suggestions as to how to do that.  2/11

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