Living Trusts: Pro-Con Arguments Won’t Die

As seems to happen every time we write about living trusts, the recent column about the pros and cons of the probate-avoidance, estate-planning devices, pitting a Walnut Creek attorney against a Wyoming lawyer, has resulted in a flood of mail, including some detailed arguments by several local lawyers.

Since many of the letters add grist to the mill, both for and against living trusts, with insight not offered by our previous lawyer correspondents, we thought we’d share some of the comments with you.

Torrance estate lawyer Jeremy H. Evans, who describes himself as being in the “middle ground” on the debate, noted some of the problems he has experienced with living trusts:

“One serious problem is the amount of fraud and theft that is occurring when the assets fall into the hands of the successor trustee (the person named in the living trust to handle administration of the estate). Without the probate court protection and the supervision of accounting ‘obstacles’ that our legal system provides, we create a wonderful unfettered opportunity for people to steal from their families without getting caught. One of the reasons the probate system appears fairly barnacle-encrusted is because it is intended to be so to provide protection for the heirs.”

“Another problem,” Evans adds, “is that these successor trustees have no business being trustees. What happens is that they try to do the trust administration work by themselves or with the assistance of an accountant or someone with a little bit of business expertise. Then an heir becomes dissatisfied with the lay person’s management of the trust estate. That person can then file a petition in the probate court and have the court order a formal accounting. Now (the trustee) finds himself in the position of doing much of the work that (he) thought (he was) going to avoid, and at this juncture it becomes a much more difficult task.”

James G. Donart, a lawyer in Fallbrook, Calif., notes that there is one significant additional advantage to a living trust that was not stressed in our previous column: incapacity issues.

“The avoidance or reduction of estate settlement costs (estate taxes and probate expenses) is the attention-getter for most people,” he says, but “there are advantages that are personal to the client.”

To many of his senior citizen clients, “the fact that they might save some probate expenses and, perhaps, estate taxes for their children is nice, but they are more concerned about incapacity issues.”

What happens when an older person has a period of physical or mental incapacity? How does the spouse handle the couple’s assets? How do children manage for the surviving parent who is now incapacitated?

“Living trusts avoid guardianship and conservatorship (court) proceedings by allowing the duly nominated successor trustee (a well spouse, child, friend, or professional fiduciary) to take over management of all the trust assets immediately.”

A hospital social worker wrote with the same concerns, having seen many patients who were disabled or incapacitated with no one to handle their affairs.

The central point in the controversy is that living trusts are excellent estate-planning devices for the right people under the right circumstances, but care should be taken in deciding if they are right for you. Jeremy Evans describes a stereotypical case: “Elderly woman lives in expensive house with her spinster daughter. This is an ideal trust situation because the daughter is going to be the sole beneficiary and there’s the closest possible family relationship.

“At the opposite end of the pole is the situation where a young man is a wheeler-dealer (someone who will be buying and selling assets and real estate) and has a growing family. Such a person shouldn’t be in a trust because he keeps having to amend the trust as he buys and sells property and moves in and out of businesses and has more children.”

So, as with most legal issues, the answer on living trusts is “it depends.”