Do I need a living trust?

It happened again today. A client (two clients, actually--a lovely couple, in their 80s) came to see me about estate planning. Their central question: "do we need a living trust?"

This couple, like many (but by no means all), had done a lot of homework and preparation. They had collected all their finances, and they showed me that they were collectively worth about $750,000. A portion (but only a small portion) of that money is in three IRAs, with two belonging to the husband and naming the wife as beneficiary, and one in the wife's name listing the husband as beneficiary.

Just over ten years ago, they had asked another local lawyer (prominent and respected in the local legal community) the same question. Their assets at the time were about a third of their worth today--but then the federal estate tax threshold was also about a third of today's $2,000,000 level. They were well below having a taxable estate then, and they remain so today.

Their first lawyer's advice: no, you don't need a living trust. Your estate is not taxable, you are not intending to put any limitations on what you leave to your children, and you already have everything held in "payable on death" or "transfer on death" accounts, or naming your children as beneficiaries.

I answered the same way: you don't need a trust. They were disappointed, on some level. They brightened up a little when I followed my own advice with "...but I wouldn't call you fools for establishing a trust, either." My basic point: the cost of establishing a living trust is modest, and there is a strong likelihood (but no certainty) that the total cost of probating the survivor's estate will exceed the cost of the living trust. But, I pointed out, the "savings" will necessarily benefit the couple's children; they will have to die to realize any savings. And that's a lousy way to save a buck.

As so often happens, though, they decided to go ahead and establish a living trust for another reason: all their friends have living trusts. I explained, candidly, that I agreed with that sentiment. A very large part of what we lawyers sell when helping with estate planning is peace of mind. If a client thinks he or she (or they) wants a living trust, it ought to be possible to have one established without feeling like the lawyer is talking you out of something. It's especially annoying (to clients) to consider the possibility that the lawyer might really be saying "your estate is too insignificant to justify the fancy planning your best friends and bridge partners have undertaken."

Did my clients really need a living trust? No. They had actually done a pretty good job of establishing beneficiary designations on all their assets, so the cost and hassle of probate was not going to be an issue in any event. But they came in wanting a trust, they felt like maybe they were missing out on something by not having one, and the cost of getting a trust was way less than, say, the big-screen LCD television they might well have decided they want--no, need.

Are living trusts oversold? Absolutely. Would today's clients have been fine with new wills and powers of attorney, plus a little advice about beneficiary designations? Absolutely. Did they need a living trust? Absolutely not. Will they benefit from having a living trust? Absolutely.

Robert Fleming
Fleming & Curti, PLC
Tucson, Arizona
www.elder-law.com

Comments

[Mary WanderPolo]

I agree that living trusts may be over sold, but what is more often the problem is that once the trust has been sold there is no follow through to ensure that the assets of the settlor were actually retitled into the living trust. It is not enough to create a trust for a client, someone must follow up with the client to ensure that assets are retitled correctly. An unfunded living trust is truely a waste of the clients funds.

[David Goldfarb]

We recommend living trusts in two circumstances where probate may be difficult. First, where there is real property in multiple states which will necessitate ancillary probates. Second, where the next of kin are not the beneficiaries under the will and they will be hard to identify and locate. We have had cases requiring extended searches, hiring of genealogists, and publication which unnecessarily depleted the estate.

[Jim Schuster]

Robert, please, please please! Let us, as elder law attorneys, put an end to the question "Do I need a living trust?" by framing it in terms of probating the survivor's estate. Yes those observations are PART of the issue but fail entirely to answer the client's question.
Let us consider the question in this context: "Do I need a special needs trust?"
Our clients age and some will have significant periods of disability. Kinda like the disabled children we are ready to plan for. Why on earth would we forget the primary client is beyond me. Many of them have significant resources to avoid the easy solution of nursing home placement. I am a firm advocate of "special needs" trust language for my client, use of trust protectors, etc., where the client has no clearly identified and reliable caregiver team.

I second David G's observation with this that whenever I see a client with significant investments I must advise them it is much easier to manage those by a successor trustee than by an agent under DPOA.

If we answer the client's inquiry with "Who will help you if you are disabled?" We are that much closer to answering their real question "How could a trust help ME"
Jim

[Robert Fleming]

You are absolutely right, Jim. I posed the question the way it usually gets asked: "Do I need a living trust?" I agree that a much more important question is "How could a trust help me?" It is almost always a cost/benefit analysis--will I get enough benefit from a trust (probate avoidance, easier estate management if I become incapacitated, etc.) to justify the cost (higher lawyer's fees, some small difficulty with transferring title to assets)?