Attorneys’ Letters Present Two Sides in the Living-Trust Debate

Living trusts have come in for a great deal of controversy in recent years, although they have been around since the early part of this century. There are living trust law firms that extol their virtues in advertising and marketing materials, while probate lawyers urge caution, saying that mass-produced living trust documents don’t always save the time and expense promised.

For an individual consumer, it’s hard to find detailed, accurate information summarizing both points of view.

The National Resource Center for Consumers of Legal Services is a nonprofit organization that reports on activities in law and lawyering. Its executive director, William Bolger, recently wrote in his Legal Plan Letter about living trusts, which inspired a debate in letters between two lawyers, Jay Lutz, from Walnut Creek, Calif., and James Thompson, from Billings, Mont.

If you’d like a copy of their arguments, send your request with a postage-paid self-addressed envelope (52 cents of postage; they are long letters) to the center at 1444 Eye Street NW, Washington, D.C. 20005.

But let us first offer brief summaries of some of their points.

Lutz, a recent convert to living trusts, sees many probate avoidance advantages for the average person, whom he defines as anyone with an estate between $60,000 and $600,000. (The advantages for those with larger estates are pretty well established.) For estates under $60,000, as we have pointed out in previous columns, there is no need for probate in California.

Even though community property assets owned by a husband and wife pass to the surviving spouse without probate in California, Lutz notes that the probate problem still exists when the surviving spouse dies. And a living trust can plan for that contingency.

Lutz says that the paperwork involved in placing one’s assets into the living trust are not burdensome for the average person, because they are usually not buying and selling significant assets frequently.

In all, Lutz views the cost of a living trust--$500 to $1,500--as a tremendous bargain for someone with an estate of $500,000, who, he says, would pay $11,150 in probate statutory fees.

Thompson raises some of the common concerns about living trusts. First, he says that although the cost may be a bargain for someone with an estate of $500,000, the same is not true for an “elderly couple on Social Security with a $100,000 estate.”

Thompson is most concerned that living trusts are marketed like consumer products, fit for everyone, rather than as part of personalized legal counseling. “I like the revocable living trust,” he writes. “I think it has many good uses. I do not recommend it for everyone, any more than I would recommend any other device for everyone.”

There are complications of both time and expense in the property transfers required, he says. And there are other ongoing costs, he notes. Sometimes the entire trust must be redone--and paid for--because a client wants to change his or her gifts.

And just because there is a living trust and no probate, the trust doesn’t eliminate many of the steps that take place in probate. “Trust assets are not insulated from creditors nor from the IRS. The bills must still be paid. The federal estate tax return must still be filed. The assets must still be distributed. . . . Looks like probate to me.”

This is all very interesting, but what caught our eye was something Lutz suggested: “Although probate has been simplified somewhat during the last few years, I suspect serious thought needs to be given to much simpler, probably non-judicial, ways of settling average decedent’s estates.”

There has been a great deal of movement in that direction. The California probate code has been overhauled in the last 10 years. And a uniform probate code was adopted by the American Bar Assn. in 1969. That code, which has been adopted in 15 states, but not in California, provides for succession without probate administration. The Uniform Probate Code was probably not written with living trusts in mind, but it does permit the elimination of many steps in the customary probate procedure.

Perhaps new legislation could carry this concept one step further, by allowing a person in his or her will to provide that the will could be treated like a living trust, calling for the administration of the estate taking place outside the probate process. Certainly, there are probably complications and arguments pro and con that we haven’t thought of, but we think the concept is worthy of debate and consideration.