Do I Need A Trust? - When You Should & Shouldn't Set Up A Living Trust
Posted by: Adair M. Buckner
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I am frequently asked by prospective estate planning clients, "Do I need a trust?" The answer is the classic lawyer response: It depends.
For some people, a revocable living trust is a very smart estate planning tool, and for others, it is a waste of money.
Trusts are promoted in a lot of random general literature that the public receives. They are not a one-size-fits-all solution. Whether setting up a living trust is a good idea for you should be discussed with an estate planning attorney who has full knowledge of your assets, family circumstances, and desires.
Here are some of the pros and cons of creating a revocable living trust.
5 Reasons A Living Trust Might Not Be Necessary
1. Probate is not that expensive if you have a good Will and competent counsel.
Often, the price charged for creating a revocable living trust, funding it, making transfers into the trust, and related documents will far exceed the cost of probate for a Will that was properly drawn up to provide for independent administration. Competent counsel will also explore with heirs whether there is an alternative to full probate to accomplish the transfer of assets desired without the expense of full probate. Oftentimes, a full probate of an estate on your death is not necessary.
2. Living trusts currently are not needed by most individuals for estate tax planning.
Under current estate tax regulations, unless you have an estate worth more than $12 million per person, you have no need for a living trust to avoid estate taxes. This could change in the future if Congress decides estate taxes are necessary again to help erase budget deficits. In my opinion, the likelihood of estate tax levels going back to less than $5 million estate minimum is low. So, for most of us, estate tax issues are no longer a driving force to need a living trust.
Even if you do have an estate large enough to trigger estate tax considerations, you do not always have to have a living trust to minimize estate tax liability. There are many estate tax minimization techniques available.
3. You can avoid probate of many assets by placing them in joint tenancy with the right of survivorship, beneficiary, or payable on death designations.
This is a much simpler way of passing on many assets upon death rather than placing them in a living trust. I urge clients to place as many assets as they can in this form of ownership or beneficiary designation if they want them to pass immediately on their death to someone else.
Unless the beneficiaries are minors or have special needs, you usually don't need a trust to pass on these assets. Also, the state of Texas has approved a Transfer on Death Deed form to make passage of title to real estate on death much easier.
4. Most probates of properly drawn Wills do not require a lengthy process.
Frequently, living trusts are touted as a way to speed up the passage of your estate on death. However, the Texas Estates Code continues to be modified to streamline and speed up the probate process. Long delays would rarely be involved in passing on assets through probate in Texas. An independent administration under a well-drawn Will requires only one hearing and minimal court involvement in the process thereafter. A competent, conscientious executor will move the process along quickly unless there are unusual complications.
5. If assets are not added to the trust as they are acquired, the purpose of having a living trust can be defeated.
Individuals who do set up a revocable living trust have to ensure that all assets they want subject to the trust are transferred into it or title is acquired in the name of the trust on a routine basis. Otherwise, a probate in addition to the trust may be necessary to transfer the title, and the expense is multiplied.
3 Reasons You Might Need A Trust
1. You own property in different states or many counties in Texas.
One of the best uses of a revocable living trust is to make it easy to pass title to real estate or oil and gas interests held in Oklahoma, New Mexico, Colorado, or any other state in addition to Texas. Even numerous oil and gas interests in counties all over Texas are easier to transfer on death if they are in a trust.
If title to real property in other states is not held in a living trust, your family might be compelled to probate your Will in all the different states in which such assets exist. Not all states have a probate process as simplified as Texas's, and they may, in fact, be much more expensive than Texas's. In this instance, there may be substantial savings realized by placing these assets in a living trust.
2. You need special assistance in managing your assets.
Although this same help in managing your assets if you become incompetent can be achieved to a large extent through a Power of Attorney, a co-trustee acting with you, or a successor trustee who would take over management of your assets, under a revocable living trust may be the best solution. You can designate a knowledgeable person or firm that you trust to aid you in handling the assets of the trust.
3. You want to provide special conditions on the receipt of assets that you prefer to remain private.
Frequently, clients have concerns about the lifestyles, addiction issues, and other sensitive family problems of potential beneficiaries. If this is the case, they may want to place conditions on whether or not or when that person would inherit property. For instance, the trust agreement could specify that the beneficiary only receives inheritance if he or she is drug-tested periodically and remains drug-free.
If such terms were in a Will, it would have to have been filed of public record in order to be probated. Many people prefer that those conditions and issues remain private. A living trust is the way to accomplish this.
How To Decide If A Trust Is Right For You:
Seek out an estate planning attorney with knowledge of Texas law to draft the documents.
Prepare a full summary of your assets to take to the attorney when you meet.
Advise the attorney of any special situations in your family that might benefit from having a trust.
Avoid using standard forms, kits, or computer software that is one-size-fits-all.
If you would like to consult with an attorney about whether or not a living trust is a good fit in your estate planning package, please click the button below to book an appointment with Adair M. Buckner.
* (The free consultation does not cover actual review of documents or giving legal advice on a specific situation.)
** This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal, or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.
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