Avoid Probate With a Living Trust

There seems to be a fair amount of confusion about living trusts, an increasingly popular estate-planning device, if my mail is any indication.

A recent letter from a woman in Lone Pine is fairly typical: "I always believed that if you had a will it was enough to protect you and keep your estate from going into probate. Now, I'm told that we need a 'living trust' as well in order to protect our property. Is this correct?"

Probate Process

She's half right. With only a will, and without a trust, the people she has selected to inherit her property will receive it. But the property will be distributed through the probate process. A living trust is not necessary to protect her property, but it can be used to avoid probate.

Probate is not a bottomless pit. When your estate goes into probate, it doesn't mean that your heirs won't ever receive it. Probate is simply the court-supervised legal process used to implement the instructions in a will.

But probate isn't free (executors and lawyers receive standard fees), and it isn't quick (it can take up to a year or more), which is why many people prefer to avoid it. A commonly used method to do that is a revocable living or inter vivos (Latin for "among the living") trust.

A trust is a legal entity into which you can transfer all or any portion of your assets. When it is created, you name yourself as trustee, and in that capacity you control the property in the trust. After your death, the person you selected as "successor trustee" takes over control of the trust, and in the simplest version, then distributes the assets in accordance with your instructions in the trust document, without waiting for a probate court to approve the distribution. It can proceed quickly and with much less expense than probate.

However, contrary to a popular misconception, everybody doesn't need a living trust. "It is not a panacea," says Scott Racine, an estate-planning and tax lawyer in Century City, who generally advises only his elderly or wealthy clients to choose a living trust over a will.

And a living trust is not free, either. It usually costs more to have a lawyer prepare a standard trust and pour-over will, with fees ranging from $850 to $3,500, than a simple will. (A pour-over will takes care of any assets you didn't transfer to the trust.)

You must make sure that your assets are properly transferred to the trust, or you'll find yourself in probate court anyway. If you own a lot of real estate, invest in a number of business ventures or partnerships, or even change your investments regularly, this can be a real paper work headache. And if you pay a lawyer to do it, it gets even more expensive.

On the other hand, if all of your assets are stocks and bonds held in one brokerage account, it is very easy to transfer that account to the name of the trust.

A trust is helpful if you become incapacitated, because the successor trustee can handle your financial affairs without seeking a court-appointed conservator. And celebrities like trusts because they are private. Your assets are not listed in probate court records, which are open to public inspection.

Personal Decision

Choosing between a living trust and a will is a personal decision, with no standardized formula applicable to all. It depends on your own financial situation, potential tax liability, the complexity of your portfolio, your age and other personal matters, even your personal tolerance for paper work and details.

"Somebody is going to have a nuisance, an expense, a pain in the neck," says John R. Cohan, an estate-planning lawyer who has authored a text for attorneys on trust drafting. "With a living trust, you have to live with it. With a will, your kids get it."

Klein cannot answer mail personally but will respond in this column to questions of general interest about the law. Write to Jeffrey S. Klein, Legal View, The Times, Times Mirror Square, Los Angeles 90053.

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