Probate avoidance is often thought of as a reason to use a living trust, but its not the only reason. In nj.com’s recent article entitled “Will a living trust save time and money when settling an estate?” explains that many people who have living trusts also have what are known as “pour-over wills.”
The reason? Individuals frequently have assets that they have not placed into a living trust, such as tangible personal property. Those are things like furniture and household furnishings, a car, or a small bank account. It may also be necessary to open an estate because of unclaimed funds held by the state, a tax refund or return of insurance premiums.
Pour-over wills typically are written so the estate assets will pour over or pour into the living trust at the death of the person who created the trust.
Living trusts have the benefit of privacy and the elimination of challenges to the estate. A living trust can also be used to separate assets acquired before a marriage; or as a vehicle to manage the assets of a person with diminished or lack of capacity, such as a person suffering from dementia.
It’s important to note that financial institutions can freeze up to 50% of the assets in an estate, until a tax waiver is obtained. However, tax waivers aren’t required to transfer legal ownership of trust assets after the death of the person who created the trust. Therefore, financial institutions can’t similarly freeze up to half of the assets in a trust for that reason.
However, there can also be a few disadvantages to creating a living trust. The cost of creating a revocable living trust and a pour-over will is usually a bit more than the cost of preparing just a will, although probating a will-based estate should easily make up the difference. There may also be expenses involved with transferring assets, such as real property, into a living trust.
Will-based estate plans have drawbacks as well. The time it takes to settle an estate may be longer than what it takes to distribute trust assets. That is because it may take months to probate a will and obtain a tax waiver. The provisions of a will are a matter of public record. The legal fees incurred in administering a probate estate may be more than legal fees incurred in administering a trust after the death of the trust maker.
However, if the individual has relatively few assets that would be subject to probate, the cost of establishing a living trust may be more costly than administering an estate.
Speak with an experienced estate planning attorney about whether a revocable living trust makes sense for your unique circumstances.
Reference: nj.com (Feb. 8, 2021) “Will a living trust save time and money when settling an estate?”