As an estate-planning tool, the revocable living trust is oversold, overused, and overrated. It may also be exactly what you need.
The primary benefit is avoiding probate. Also called estate administration, the probate process can take nine months or more before your loved ones receive their inheritance. Having a living trust will enable them to receive their inheritance without delay upon your death.
The trust is established in your lifetime and then, when the time comes, functions as a substitute for your will. Setting up the trust means having to retitle each of your assets in the name of the trust. Brokerages, bank accounts, and real estate all must be transferred into the trust. The process can be involved, and in the case of real estate, it means having to prepare and record new deeds.
Still, this kind of trust is a popular estate-planning tool. Some professional advisers have gone so far as to recommend that everyone have a living trust. But the trusts can be expensive and cumbersome to set up. And unless they are properly maintained, they can actually complicate your estate after you’re gone.
Here is what can go wrong: If any property doesn’t make it into the trust, a simple will is prepared to transfer these stray assets into the trust upon your death. If this happens, it will be necessary to open a probate estate for some assets even though the trust was established to avoid probate. In other words, trying to simplify your estate could wind up complicating it instead.
Not everyone needs a revocable living trust, but everyone does need an estate plan.
The simple truth is that in Maryland at least, probate is an efficient process. A personal representative is put in charge, assets are marshaled, creditors and taxes are paid, and distributions are made—usually without incident. Probate also includes procedures for resolving any disputes or legal questions that may arise in administering your estate. When problems arise, a judge is on hand to work them out.
Even so, revocable trusts can be helpful in certain circumstances. Here are four reasons to consider getting one:
1. You own real estate outside of Maryland. Do you have property in another state? Maybe a beach house in Rehoboth? If the answer is yes, then a living trust can prevent the need to open an estate in each locale outside of Maryland where you own real estate. This procedure, called “ancillary probate,” is an additional hassle for your personal representative (executor) and can be avoided by titling your property in the name of a living trust.
2. You want someone to manage your finances for you. A revocable living trust can be an excellent tool for enabling someone you trust to manage your assets on your behalf. This person would be named the trustee and would have the legal authority to act on your behalf for all your day-to-day financial needs. It is worth mentioning that a durable power of attorney can achieve a similar result. But a trust is more ironclad, especially for someone who may be concerned about possibly losing competency.
3. You want to disinherit your spouse. In Maryland, your spouse is entitled to receive a portion of your estate, called a “spousal share,” even if your will says otherwise. The same is not true of assets in a living trust. For those who wish to prevent their spouse from inheriting from them, a living trust is one good option.
4. You’re concerned about privacy. Upon your death, your will becomes a public document. It won’t be available online, but anyone can go to the Register of Wills and obtain a copy. Using a properly prepared and funded living trust instead of a will helps to keep your affairs private after you’re gone.
It is worth mentioning that there are several things a living trust will not do. It won’t help you avoid estate taxes or, as we have already seen, even eliminate the need for a will. Still, if one of the situations described above applies to you, or if you simply find the idea of avoiding probate is particularly compelling, a living trust can be an effective planning tool.
Consider, however, that even without a trust, your loved ones can receive immediate distributions of some assets before your estate is settled. These include life insurance death benefits, retirement accounts that name a beneficiary, and bank accounts with a “pay on death” provision. These types of transfers also avoid probate—just like a living trust—but they are considerably less expensive and arduous to set up.
Not everyone needs a revocable living trust, but everyone does need an estate plan. Wills, financial powers of attorney, and advance healthcare directives are essential documents no matter what your circumstances. Speak with an estates and trusts lawyer to find out whether a living trust is right for you.
Lee Carpenter is an Estates & Trusts attorney at Saul Ewing Arnstein & Lehr LLP and an Adjunct Professor at the University of Maryland Carey School of Law. This article is intended to provide general information about legal topics and should not be construed as legal advice. For qualified legal counsel contact Lee Carpenter at Lee.Carpenter@saul.com or 410.332.8626.