Not a day goes by without someone calling me for a “price” on a Living Trust. Often the caller has already decided that he needs a Living Trust and will not even consider discussing his reasons for wanting to set up a Living Trust, or the possible adverse consequences of such a document. If the only reason for setting up a Living Trust is to “avoid probate” you probably don’t need one.
First, “probate” really means that the will is filed and recorded and declared valid by the judge. This is usually a simple procedure and is just the first part of the “succession” or transfer of the property to the heirs. Secondly, avoiding this legal procedure should not be your goal. Contrary to popular belief, most probate proceedings are not costly and do not take years. Typical “probate and succession” costs are less than the average cost of a Living Trust and the entire procedure can be done in six to eight weeks. Also, you are likely to incur post-death legal and accounting expenses even with a Living Trust because an inventory of the assets of the deceased still has to be filed, and the inheritance tax forms still have to be filed, regardless of the fact that the property was in a Living Trust.
Many people do not understand that a Living Trust is a separate legal entity, set up in order to transfer ownership of property out of one’s estate. As such, if you transfer your home to a Living Trust, you will likely lose the right to claim homestead exemption on that home. This could result in many thousands of dollars paid for property taxes
Once the trust is drafted and signed, in order to completely “avoid probate” you must legally transfer ALL the property you own to the trust. In the case of immovable property such as your home, this must be done by a deed, duly recorded in the court house where the property is located. Besides the costs of the trust, you will have the costs of deed preparation, and recording fees. When the trust is terminated, there will be more costs involved in transferring the trust assets to the beneficiaries. Many times the person who has set up the trust has neglected to transfer everything, thus resulting in the need for succession proceedings to be filed anyway.
Trusts can be effective and recommended for a variety of situations such as setting up educational or special needs funding for children, grandchildren, or disabled persons. Like any other legal document, you should fully understand all of the consequences of a Living Trust. Beware of a person who attempts to “sell” you a Living Trust by persuading you that a living trust is the right estate planning method for everyone, everywhere. Each situation is different. Meet with a lawyer, discuss your estate and your wishes, and make an informed decision as to whether a living trust is right for your estate.