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| REVOCABLE LIVING TRUSTS |
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Revokable Living TrustsYou have all received fliers in the mail inviting you to a free seminar on living trusts. You are invited to learn how you can avoid probate, avoid estate taxes and liens, manage your assets, pay your bills, etc., etc. According to the advertisements, it seems everyone should have one. According to the advertisements, everyone needs one. While there are many benefits and reasons to use a revocable living trust, there are some disadvantages as well. These must be considered and evaluated. First, one must understand what a revocable living trust is and what it can and cannot do. As the name implies, a revocable living trust is established during the lifetime of the Grantor (the one who establishes the trust) and written so that the Grantor can revoke or change the trust during his lifetime. Primarily, they are used for the management of property during the lifetime of the Grantor and distributing the trust assets upon his death. Often the Grantor is the Trustee as well, thereby maintaining full control over the assets while he is alive. As with all trusts, one must look to the terms of the trust to determine what happens to trust property. Usually the trust terms provide that the assets are to be used for the benefit of the Grantor during his lifetime and state what happens to the trust property upon the Grantor’s death. The Grantor will often retain the ability to remove any or all assets from the trust or change its terms in any way. In order for these trust to be effective in avoiding probate, as the ads say, first, the Grantor must transfer all his assets to the trust. The trust it will not be effective to control what happens to any assets not held by the trust. For any assets that the Grantor fails to transfer to the trust, an estate or probate proceeding may still be needed to distribute those assets. Advantages to using a Revocable Living Trust One of the benefits of a revocable living trust is that a successor Trustee nominated in the trust to automatically assume office upon the death or disability of the Grantor can take over and manage the trust in the event the original Grantor/Trustee becomes disabled. Although the same thing can be accomplished by executing a comprehensive durable Power of Attorney, it may be easier for a Trustee to manage assets than an agent using a Power of Attorney. The speed in which an estate can be settled is another benefit of using a trust. Upon death of Grantor, trust assets can be immediately distributed to the beneficiaries. There is no need for a court proceeding. So yes, one can avoid court filing fees. However, it should be noted that the estate filing fees are usually less that the cost to establish the trust and transfer one’s assets into it. Another benefit of using a revocable living trust is privacy. All papers and proceedings in Surrogate’s court are open to the public. This is how the press finds out what is in a celebrity’s will and estate. When the will is submitted to the court for probate, anyone can go down to the courthouse and ask to see a copy of it. But since most people aren’t really interested in what the average person writes in his will, this isn’t much of an issue for the average person. The issue of privacy does become especially important if a will contest is expected. It is much more difficult to contest a trust than it is a will. There are no notice requirements for a trust like there are in a probate proceeding. In an estate administration proceeding all family members who would inherit if the decedent had died intestate (without a will) are required to receive notice of the proceeding. There may be others who are entitled to receive notice of the proceeding as well. The execution of the will, the terms of the will, or the appointment of the executor can all be objected to by certain individuals. These things can delay the administration process and be costly in terms of legal fees. One other benefit of using a revocable living trust is that it may be possible to avoid a Medicaid lien. This is an important consideration and these trusts are often used for this purpose. The area of Medicaid planning, procedures, liens and estate recovery is a vastly complex area that is beyond the scope of this article and should not be undertaken without seeking the advice of an experience elder law attorney. Disadvantages and Misconception of a Revocable Living Trust While revocable living trusts are valuable in that they can save some costs later on, as well as maintain privacy of an estate after death, speed up the process of distribution of assets and make the management of assets in the event of a disability during the lifetime of the grantor, and avoid a Medicaid lien, there are some drawbacks or reasons for not using a trust. One must consider whether using a trust will actually be a benefit rather than a burden. It seems that the public is under some misconceptions regarding the benefits of using a revocable living trust, perhaps as a result of the popularity of these free seminars. Too often, clients state that they want or need a revocable living trust. They are either not really sure why they do or think that having a revocable living trust will solve many legal issues that aren’t really issues at all. The first misconception is that a revocable living trust can save thousands of dollars in estate taxes. The truth is that a revocable living trust alone cannot save estate taxes. How much one pays in estate taxes depends on the size of the estate, how the assets are titled and what happens to them upon death of the owner. All assets in a revocable trust are included in the grantor’s estate and New York State and the IRS do not care if assets are in the trust or not. While you can draft the dispositive portion of the trust (what happens upon death) to avoid taxes, this is not usually done. And it probably won’t be done in the type of trust promoted by the free seminar. The amount and title to the assets must be analyzed and the trust carefully drafted to achieve this result, something that might be better accomplished by a good estate plan and well-drafted will. The second misconception is that you will again save thousands of dollars on attorney’s fees and court fees. The goal seems to be that you should avoid probate because of the complexity of the process and the enormous fees involved. The truth is that attorney’s fees for drafting and transferring title of the assets to a trust are usually higher than drafting a will. The maximum filing fee for an estate proceeding in New York is $1250 for all estates over $500,000. The maximum fee for an estate under $500,000 is $625. Attorney’s fees for drafting a will vary with the complexity of the will, but often are much less that drafting a trust. After the will is executed, there is usually no need to change the title to the assets so there will not be any transfer fees. Attorney’s fees for administration of the estate often depend upon the size and complexity of the estate. These fees can often be kept to a minimum with good record keeping. Another misconception is the time it takes for a will to be admitted to probate and for the assets to be distributed and the estate settled. The truth is that if a will is in proper order, self proving witness affidavits are attached and the proceeding is uncontested, most of the time no hearing is needed and the will can be admitted to probate without delay. This is especially in Nassau and Suffolk counties where the will is often admitted to probate within a few weeks. If all the assets and beneficiaries are identified and available, there should not be any delays in administration of the estate. There are often fees involved for the transfer of assets into the trust. Any transfer of real property must be done by a deed. The deed must then be recorded. An attorney will charge a fee to draft the deed and the county will charge a fee to record it. Although with the proper language in the deed and trust one may be entitled to retain any property tax exemptions they must be reapplied for once the property is transferred to the trust. Bank accounts, brokerage accounts, mutual funds, stocks and bonds all must be retitled to the trust. This can be confusing and sometimes overwhelming. Additionally, with regard to real property, when the property is being sold, a title company will want a copy of the trust, assurances that the trust is still in effect and if the property is being sold after the death of the Granter, may still require that an estate administration proceeding be commenced if they are concerned about insuring title to the property. Reality While Revocable Living Trusts are an effective tool, the advantages and disadvantages must be weighed by the individual and his attorney on a case be case basis. When documents are properly drawn, properly administered and good records are kept, whether a person uses a trust or will and estate administration, the proceeding is less complicated. Failure to properly fund the trust or keep good records can make the process more expensive and time consuming and still require a proceeding in court to administer the estate. This is the reason a will, commonly referred to as a Pourover Will, is executed along with the trust. This insures that any assets not transferred to the trust will be transferred to it upon the probate of the will. These assets are the subject of the same probate proceeding one was trying to avoid. The person who would most benefit by the use of a Revocable Living Trust is one who is concerned about managing their own assets in the event of a disability, desires privacy in the administration of their estate or expects a will to be challenged, or is concerned about avoiding a Medicaid lien against the estate. Most importantly, all these issues and how best to address them should be considered. Each situation is unique and documents should be drafted to fit the individual. Not the other way around. Your attorney is best able to guide you in this decision. To discuss your individual concerns, This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Joan S. Arbiter, Attorney at Law, P.C. Melville, New York attorney, Joan S. Arbiter, helps families and individuals throughout Nassau County, Suffolk County, and the New York Metro Area to resolve legal issues in the areas of elder law, Medicaid planning, estate planning, probate, and real estate. Long Island communities she serves include Amityville, Commack, Dix Hills, Farmingdale, Hauppauge, Hempstead, Huntington, Babylon, Levittown, Massapequa, Melville, Mineola, Plainview, and Woodbury |