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LIVING
TRUSTS HELP HEIRS AVOID THE DRAWBACKS OF PROBATE
An
article by: Attorneys David H. Ferber and Edward D. Beasley
The living
trust (also known as the revocable trust) has, in recent years, become
the preeminent estate planning device. It is routinely used by average
persons, not just the wealthy, to avoid the high cost, publicity and
inconvenience of probate.
Probate is the process by which assets are transferred to your heirs
on death. Although the law states that probate can be completed in
six months, a more realistic figure is a year to a year and a half.
During this time, your assets are not readily available to your heirs,
are open to public view, and are subject to creditor claims, whether
or not they are valid. The costs of probate can be high, and consist
of attorney's fees, appraiser's fees, court fees and fees to an insurance
company for an executor's bond. Probate also prolongs the natural
grieving process, because the ongoing court proceedings continually
remind family members of the death of their loved one.
Probate typically benefits no one but lawyers, appraisers and insurance
companies, and should be avoided where appropriate. A living trust,
actually no more than a glorified will, avoids probate. With a living
trust, a typical estate for a middle class family can be settled quickly,
privately and inexpensively, almost always without an attorney.
A trust has three parties - a donor, trustee and beneficiary. The
donor sets up the trust, the trustee manages the property in the trust,
and the beneficiary gets the use and enjoyment of the property. A
person who sets up a living trust wears all three hats, donor, trustee,
and beneficiary.
After a living trust is set up, it must be "funded". This involves
changing the title of your assets, such as your home and your bank
accounts, into the name of the trust. For example, instead of your
bank account reading, "John Smith," it will read, "John Smith, Trustee
of the John Smith Revocable Trust." During your life, you act as trustee
and beneficiary. You maintain complete control over the money and
the property in the trust. You can buy, sell, trade, or do whatever
you want with your property, just as if the trust did not exist. If
you want to sell your house, for example, you will sign your deed,
"John Smith, Trustee," instead of "John Smith." If you buy a new house,
you will merely take title in the name of "John Smith, Trustee."
A living trust can be easily changed to meet the needs and goals of
you and your family. In addition, the trust can provide for management
of your assets in the event you become ill or incapacitated during
your life. When used together or with a durable and health care power
of attorney, it can help completely avoid expensive guardianship proceedings.
Upon your death, the person you have designated as "successor trustee,"
usually a child, automatically takes over management of your assets.
Your successor trustee settles your affairs, and then distributes
your money and property to your heirs.
Although the purpose of a trust, avoiding probate is simple, a trust
is a complex legal document. There may be tax issues involved, and
the terms of the trust must be thought through and drafted with great
care and skill. Therefore, a trust should only be prepared by an attorney
who is experienced in the field of estate planning, and who will stand
behind his or her work. Those who purchase mail order trust kits advertised
in the back of magazines, or who utilize the services of non-attorney
door-to-door salesmen, are taking great perils with one of the most
important documents of their life. On the other hand, a properly drafted
living trust will lighten the burden that death places on your family,
and will greatly simplify the process of transferring your assets. |
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