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Living Trust or Last Will and Testament

            Over the past few years, there has been an increase in the prevalence of advertisements and seminars expounding the virtues of the Revocable Living Trust as an alternative to the Last Will and Testament to disposing of assets upon one’s death. While the Revocable Living Trust or “Living Trust,” as it is commonly referred to, can be an attractive alternative to a Will for some, I am of the opinion that most often the Living Trust fails to provide much of the benefits that the public has been led to expect.  Thus, a Living Trust may not be the appropriate vehicle for most people. Herein, I will attempt to dispel the many myths and misunderstandings that abound regarding the Revocable Living Trust.     What Is A Living Trust and How Does It Work?               As its name suggests, a Revocable Living Trust is a revocable trust established under a trust agreement by an individual (to whom we will refer as the “Grantor”), during his or her lifetime, and managed by one or more Trustees. It is generally created for the purpose of managing the Grantor’s assets during his or her lifetime, and for distributing those assets upon the Grantor’s death. Often, the Grantor also serves as the sole Trustee during his lifetime, thereby maintaining complete control of the trust assets throughout his/her lifetime.               In order for the Living Trust to be effective, it is imperative that the Grantor divests him/herself of all assets, transferring ownership to the Trust. Once title of all assets have been transferred, the terms of the trust agreement will dictate the manner in which those assets are maintained during the Grantor’s life and the disposition of those assets upon the death of the Grantor. The terms of the trust agreement will usually provide that the trust assets be used for the benefit of the Grantor during his/her lifetime, and set forth the manner in which those assets shall be disposed of upon the Grantor’s death.  

Advantages of a Living Trust

              The Living Trust provides certain advantages that are not available through a Last Will and Testament. For instance, upon the death of the Grantor, trust assets are distributed rather quickly to the beneficiaries designated in the trust agreement without the necessity of court proceedings, thereby eliminating the court costs normally incurred in probate and administration matters.               Another attractive feature is that the Living Trust provides for continuity of asset management.  A Successor Trustee is nominated in the agreement to automatically assume office upon the death of a Grantor serving as sole trustee, thereby avoiding a court proceeding. Likewise, a successor trustee would take over the management of the Grantor’s assets in the event that the Grantor becomes incapacitated. This is particularly useful to the elderly for whom proper planning for incapacity is important.    

Use of a Living Trust for Medicaid

              Revocable Trusts are useful where Medicaid is of concern. Where the Grantor of a revocable trust, or his/her spouse is a Medicaid recipient, the Revocable Trust can be utilized to avoid liens that Medicaid may otherwise place on property. Medicaid rules provide that where a grantor’s spouse is a Medicaid recipient and the Grantor expends money on the spouse, Medicaid has a right to place a lien on the Grantor’s property upon his or her death, in order to recoup such costs. However, such liens can only be placed against the (grantor’s/recipient’s) probate or intestate estate and, since revocable Trusts are not probated, the underlying Trust property is not subject to such liens.    

Living Trust with Will Contest

              Where the possibility of a Will contest is anticipated, the privacy feature of the Living Trust may be of particular importance. A Living Trust is a private instrument.  As such, there is no court proceeding necessary to effectuate its dispositive provisions. Thus, the Trust terms are not accessible by the general public, which may provide comfort to some. Conversely, when a Will is probated, it becomes a matter of public record, which means that anybody can obtain a copy of a person’s Will simply by visiting the Surrogate’s Court. A more common concern is that the process of probating a Will entails notifying all family members whose relation to the decedent would give him or her a statutory right to a share of the decedent’s estate, had the decedent died without a Will. Such family members are provided the opportunity to contest the Will or object to the appointment of the proposed Executor, both of which can cause significant delay. Where a Living Trust is the controlling dispositive instrument, no such notice needs to be given, thereby reducing the opportunity for the instrument’s validity to be challenged. While Living Trusts are not impenetrable, the process of challenging them is more difficult.               There are numerous factors and personal objectives that motivate an individual to use a Revocable Living Trust.  These include: (1) cost savings, (2) maintaining a private transfer of property upon death, or (3) centralized management of assets during life and a smooth transition of such management upon death. Therefore, it is important that the information regarding Trusts is clear and unambiguous in order to ensure informed and appropriate choices. Unfortunately, misperceptions exist among the general public regarding the benefits the Living Trust and it is not uncommon for a client to come in to our office with misinformation they obtained at a Trust seminar.     MYTHS ABOUT A LIVING TRUST:  

A Living Trust Saves Estate Taxes

              Possibly the most prevalent of the myths that exist regarding Living Trusts is its ability to save individuals a fortune in estate taxes upon death. The fact, however, is that there is nothing inherent in the nature of the Living Trust that serves to save estate taxes. Because the Living Trust is a revocable instrument, and the grantor retains a right to the income during his lifetime and, often, unfettered control over the underlying Trust property, the Trust assets are fully includable in the Grantor’s estate upon his death. While estate tax savings may be attainable through certain tax-sensitive provisions that can be included in a Living Trust, such tax provisions can, and often are, set forth in an individual’s Will.  

A Living Trust Allows for Overall Cost Savings

              The public perception seems to be that the costs associated with probating a Will are exorbitant and should, therefore, be avoided through the use of a Living Trust. The reality in New York, however, is that the court fees associated with probate are nominal, with the largest of estates (those estates valued at over $500,000) incurring surrogate’s court filing fees of $1,250. Smaller estates can expect to pay as little as $45 - hardly an exorbitant amount to be avoided. In fact, those establishing a Living Trust for the sole purpose of keeping costs down, should expect to actually incur higher legal fees associated with effectuating the transfer of numerous assets into the Trust, a measure that need not be taken where a Will is the dispositive instrument of choice. Basically, the decision is whether to pay now or later.               In general, the administration of an estate can be an expensive and time-consuming undertaking, regardless of whether a Will or a Revocable Living Trust is involved. The bulk of the costs, however, are generally attributable to the payment of various taxes and, depending on the diversity and complexity of the decedent’s property, the legal work necessary during the normal course of settling an estate. In fact, in estates where a Living Trust exists, improper record keeping may spike legal fees associated with administering the estate of a Grantor of a Living Trust by necessitating a significant increase in time spent by the attorney in ascertaining which assets were properly held by the Trust and which were, in fact, probate assets. This can foil the objective of limiting costs.    
 

UNANTICIPATED PROBLEMS

 

Administratively Burdensome

              There are other often unanticipated problems associated with the living Trust. As discussed earlier, in order for the Living Trust to effectively dispose of an individual’s assets upon death, all assets owned by the Grantor must be transferred into the Living Trust. Any subsequently acquired assets must also be retitled to the Trust. The process of effectuating such transfers may be a daunting task for the elderly who may no longer be in the stage of their lives where they are continuing to accumulate property and for younger individuals who are burdened with the task of maintaining every asset acquired after the Trust has been established to be sure that it is titled in the name of the Trust. In the event that the Grantor owns any asset individually at the time of his/her death, the terms of the Living Trust Will not govern such assets, thereby thwarting the objectives that the Living Trust was designed to meet.  

Probating a Pourover Will

              Whenever a Living Trust is established, the Grantor simultaneously executes a Will, commonly referred to as a “Pourover Will,” which is designed to dispose of those assets that did not get transferred into the Trust by the time of the Grantor’s death. The terms of the Pourover Will generally provide that any asset being disposed of through the Will shall be “poured over” to the Living Trust, which will, in turn, properly dispose of such asset in accordance with its terms. While this appears uncomplicated, it should be remembered that the majority of individuals who set up a Living Trust do so in order to avoid probate. Where assets exist in the name of the individual, the Pourover Will must be probated so as to effectuate such disposition, rendering the steps taken by the individual to avoid probate futile.      

CONCLUSION

              The Revocable Living Trust can be a useful means of disposing of assets upon one’s death; however, consumers should exercise great caution when gathering information, as some aggressive marketing efforts can be misleading or, in some cases, simply incorrect as to the benefits that the Living Trust can provide. While the Revocable Living Trust may offer some attractive features, many of the same benefits are also attainable through a Will. Further, before creating a Living Trust, a potential Grantor needs to evaluate that the benefits to be gained to determine if they it is worth accepting the administrative burdens that accompany the establishment and maintenance of the Trust.               Among those who would likely derive the greatest benefit from the Living Trust are the elderly and the infirm who may find comfort in the feature providing for management of their assets during their lifetime. Additionally, individuals who are anticipating a possible challenge to the validity of their Will by a discontent family member may impede such a challenge because of the privacy feature of the Trust.               As discussed above, it is probably imprudent to establish a Revocable Living Trust for the sole purpose of avoiding probate and the perceived expenses or consumption of time associated therewith. InNew York, the probate process is relatively quick, ranging generally from about one week to a month or six weeks, depending on the county in which the Will is being offered. Further, the court costs are nominal.               Generally, unless your particular situation is such that you fall within one of the categories that I described as the most suitable for the Living Trust, I am of the opinion that a Last Will and Gestament, in conjunction with a general Durable Power of Attorney should sufficiently suffice for the steady management of one’s assets during one’s lifetime, and the effective disposition of such assets upon death, barring any extenuating circumstances.               Most importantly, when considering whether the Revocable Living Trust should be chosen as an alternative to a Last Will and Testament, an individual must assess his or her particular situation and decide accordingly.