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| THE TRUTH ABOUT LIVING TRUSTS |
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You go to a seminar and the speaker touts the wonders of the Living Trust, how you’ll pay thousands in taxes without it, how probate will cause your relatives unending problems, fees, delays, and complexities. Then you ask your lawyer, who says you don’t need a “living trust”, probate isn’t so bad in Colorado, and that all you need is a $250 “simple will”. What is the truth about Living Trusts? Is the seminar speaker going too far? Is your local attorney underestimating the negatives of probate?
Here is the “truth” as I see it, after having spent over twenty-one years preparing hundreds of both wills and trusts for clients and having probated numerous estates. Living Trusts Do Not Save Taxes It is well known that estate taxes may be saved if a married couple incorporates into their estate planning documents the so-called “A/B Trust” arrangement (where the first $2,000,000 of assets owned by the first spouse to die is set aside in a separate “B” trust for the spouse and children, in order to remove such assets from the surviving spouse’s taxable estate; the remaining property is held in the “A” trust solely for the benefit of the surviving spouse, which qualifies for the marital deduction). This plan can save as much as $920,000 in estate taxes otherwise payable on the death of the surviving spouse. However, it is important to know that this plan may be put into a will as well as a Living Trust. Thus, there is no advantage to one over the other, as far as saving taxes is concerned. Probate Fees Are Moderate In Colorado Some seminar leaders point to 5-10% probate fees, citing the California statutory fees as a typical example. We don’t live in California and there are no statutory probate fees in Colorado. The average cost in Colorado of probating a small estate (under $600,000) should be under 2% and a larger estate closer to 1½% (although I’ve heard of some local attorneys who charge 3% of the estate value per year!). Note, however, that this is for each spouse, so for a couple as a whole the range may well be 3-4% of their total estate. A Living Trust does not avoid probate, except to the extent it contains all of the property owned by an individual. A properly funded Living Trust will completely avoid probate, and the overall cost of a Living Trust will be less than that of a will plus probate. A Living Trust Offers Superior Disability Planning A will is signed and placed in a drawer until the one who signed it (the “testator”) dies. It offers no assistance during the testator’s lifetime. A Living Trust, on the other hand, can allow the spouse or other family members to instantly take control of a disabled individual’s financial affairs, avoiding a conservatorship. Insurance company statistics indicate that in any given year people are six times more likely to suffer a disability which will render them unable to handle financial affairs than they are to die. A conservatorship in Colorado is very expensive and burdensome: you have to hire an attorney to represent your petition to be appointed conservator for the disabled family member (cost: $1,500+); the court appoints a second attorney to interview the family member (cost: $600+); you need a physician to certify the family member is incompetent; notices must be sent to all interested parties; and if you finally get appointed, only certain types of investments of property are permitted by the court, annual accountings must be filed with the court (more attorney fees), and you must seek court approval for any expenditures that are the least bit out of the ordinary. A will does not avoid these expenses; a Living Trust can. A Living Trust Reduces Delays in Administration George Turner, a noted legal author, states that “the reality is that regardless of how simple an estate appears to be or actually is, it is almost impossible to close an estate through the probate system in less than one year.” Turner suggests that the typical time for probate is closer to two years and that periods of three to four years are not that unusual. A 1991 article in U.S. News & World Report states that probate takes an average of seventeen months. One of probate’s primary functions is to transfer title of the deceased person’s assets to his or her beneficiaries. Assets which remain titled in the name of the decedent during the probate process are in legal limbo. Having a fully funded living trust avoids the delays caused by appointing an executor, retitling assets, and waiting out the creditor claim period. In the vast majority of estates, living trust-centered planning substantially reduces or totally eliminates the delays inherent in the probate process. Wills are Public; Living Trusts are Private Most people are not concerned that their wills may be viewed by their neighbors (or anyone else, for that matter) at the local probate court after their deaths. Note that what they owned does not have to become public knowledge, however, if the will “waives” the filing of the Inventory and Accounts. If total privacy of even the terms of the estate plan are important, then the Living Trust will accomplish this. If You Own Non-Colorado Real Estate, Use a Living Trust A person who dies owning real property in several states is required to have a probate administration commenced in each state. This can be an expensive and time-consuming process. In each state another executor, another lawyer, and another probate court must be utilized. Out-of-state property titled in a Living Trust will avoid the necessity of ancillary administration, saving the estate significant amounts of time, money, and aggravation. Will and Trust Contests Wills may be more susceptible to being challenged than are Living Trusts. It is much easier for a contestant to obtain standing to challenge a will. All beneficiaries are notified of the death, sent copies of the will, and practically invited to file an objection if they so desire. A trust is private, no such notice is sent out upon the creator’s death, no trust copies sent out to non-beneficiaries, and a separate lawsuit would have to be filed in order to challenge the trust. Finally, if the trust has been funded and actively managed by the creator for a period of time, it would be virtually impossible to successfully challenge it in court. Conclusion For most individuals at least 50 years old, the advantages of the Living Trust outweigh those of the will, but each person’s case must be considered individually. For some, the Living Trust may be overkill, and a simple will sufficient. Both you and your attorney should consider the points discussed above and make an informed decision. |
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Boulder ElderLaw
Law Office of K. Gabriel Heiser 4845 Pearl East Circle, Suite 101 Boulder, CO 80301 Ph:(303) 447-6855 fax: (888) 301-9466 
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