Avoiding probate is another benefit of living trusts. Tales of probate have
become the stuff of legend—with assets either getting tangled up for years or
being significantly depleted while waiting for lawyers to settle an estate. To
some extent, those problems have been solved. “Probate used to be a bad thing,”
says Fevurly. “But in recent years it has been simplified considerably, and in
most states there is what is called informal probate. It’s inexpensive, and does
not involve nearly as much complexity and time.” This is not the case in every
jurisdiction, however. California, Florida and New York are among the states
most associated with burdensome and costly probate administration, where typical
fees amount to 3 percent or 4 percent of the gross value of the estate.
The Last Details
While living trusts do require some degree of ongoing
maintenance and administration, the bulk of the work is done up front in funding
the trust. Funding, or transferring assets to the name of a living trust, can be
simple in some cases, difficult in others. With bank and brokerage accounts, it
is as easy as filling out another application in the trust’s name instead of our
own. With real estate, it involves having an attorney prepare a new deed.
Personal effects also require a deed or certificate of ownership in the name
of the trust. Special provisions dictate how close corporations, sole
proprietorships, limited partnerships and other family businesses must be named
to the trust.
The living trust can be designed with estate planning
provisions for gifting assets to heirs and charities while recognizing estate
tax savings. The tax savings are not recognized under the revocable trust, but
go into effect upon the death of the grantor, when the trust is rendered
irrevocable. Using the correct language, all of these same provisions can be
made within a will or testamentary trust. However, while the cost of drafting a
living trust for these purposes is not significantly greater, the benefits are.
Because each state has specific probate laws, the ins and outs of living
trusts can vary from jurisdiction to jurisdiction. Some foreign jurisdictions,
such as Switzerland, operate under Napoleonic code rather than British-based
common law and do not recognize trusts. In the state of Louisiana, which also
has a civil system based on French rule, recognition of a trust can be more
difficult than in other states. Trusts in or involving that state must be
drafted using very specific language.
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