Living Or Grantor Revocable Trusts Versus Other Probate Avoidance Techniques

  1. Estate taxes are no longer an issue for most married couples in most states following the 2013 tax law change made a $5.34 million exemption available at each death.
  2. This does not mean that trusts are not needed anymore. It is true that they can be much less complicated, less restrictive and sometimes are a very good choice to manage your assets when you are gone.
  3. Whichever choice you make, it is important to avoid any necessity that assets have to pass through a probate court proceeding.
    1. Because they were designed to protect creditors not families, probate proceedings and the administration of estates in probate is a costly and very public process — often takes six to nine months, a number of hearings and court filings, and, depending on the assets or family situation, it can take much longer. You can expect legal and accounting fees in excess of $7500, whereas trust administration and proper titling the cost is a small fraction of that and the hassle for those who come after is much less as well.
  4. While some may be able to avoid probate with wills, only those with well-drawn beneficiary designations, PODs and TODS, may successfully avoid probate as well. But there are drawbacks. To begin with, if there is more than one child they become partners with each other, each other's creditors, and sometimes with their ex-spouses.
    1. Assets left outright by Will are subject to anyone's creditor or spousal claims. It can also result in assets passing down to daughter or sons in laws or even ex-spouses instead of the grandchildren. This can also be true with transfer on death deeds. There can also are adverse capital gain income tax consequences in other types of joint ownership with children with anyone other than spouse. You might also be passing assets to heirs when they are 18 OR ones who lack capacity to handle personal finances — few people want that.
  5. Life insurance and retirement plan beneficiary designations that accompany plans with no trusts can also have unintended and hurtful results. Do you know that share and share alike means the survivor takes all? Grandchildren of a deceased child take nothing. It is true that sometimes companies and administrators allow a per stirpes option to avoid this problem but they do not often tell you until you ask.
  6. A trust is much easier and more private to administer; it can often be kept completely private except among the INTENDED beneficiaries. Others need not know what passed or to whom. Probate nearly always requires some public accounting for the assets, an opportunity for creditors to demand payment even of disputed debts (prime example: ex-spouses of children).
  7. Especially if you own business assets, or real estate in several locations, or if you are a single man or woman with heirs you wish to take care of, without a well-drafted revocable trust, it will be difficult to wind up your affairs and costlier than it needs to be. In fact the value of business and real estate interests can simply evaporate — I've seen it.
  8. Second marriages and stepchildren create other issues better handled by a trust, and any attempt to cut off a natural heir from inheritance will often fail unless a trust is used.
  9. If a closely held business or operating farm is owned by the decedent, those assets will drop in value significantly during a probate — which is likely if not titled in a trust.
  10. My view is, in all of these cases, it is usually better to have a living trust.