Wills vs. living trusts: tailor them to fit your life.
Which is the better method of passing property to your intended beneficiaries--a will or a living trust? This question has fostered debate from coast to coast. The answer depends upon the particular situation.
A primary reason for creating a living trust is to "avoid probate." Most people associate the probate process with unreasonable delay. This is not true. Probate means the process by which a court certifies that the document purporting to be a decedent's will is indeed valid. This is not a lengthy procedure.
Other people believe avoiding probate will save expenses such as executor's commissions, legal fees, and probate court costs. Is this correct?
Is Avoiding Probate Cost Efficient?
Potential executor's commissions will be reduced, since little property will pass under a will if it passes under a living trust. However, the executor's commissions may be replaced by trustee's commissions which, over a reasonable period of administration (say three years), may not be significantly less than those of the executor in probate. The legal fees, measured by the time spent by attorneys in connection with property included in the decedent's estate for tax purposes, usually do not vary whether property passes under a will or under a living trust. Legal fees fixed (based on a reasonable fee for services rendered) will not be significantly different, either. However, in some states, legal fees are based upon the percentage of the probate estate. In those states, the use of a living trust will reduce legal fees in many, but certainly not all, cases. Finally, in general, probate court fees are not significant. I practice in New York and Florida, and the highest court fee is $1,000. Therefore, cost will usually not be a factor in determining whether the use of a living trust is preferred to a will.
Uses of Living Trusts
The living trust avoids publicity because it is not a public document like the will (which has to be filed in court). However, unless you are a politician, an athlete, a movie star, or a member of organized crime, it is highly doubtful that the public will be beating down the door of the local probate court to review your will.
The living trust will not achieve any savings in either income or estate taxes. So, if a living trust won't save time, fees, or estate taxes, why would it be used?
The living trust's major selling point is in the management of one's property during one's lifetime. Older people often wish to turn the responsibility of managing property to someone else. The living trust is created to monitor the performance of that person. Upon the death of the trust's creator, there would be a continuity of the management of the assets. Also, if the creator becomes incapacitated, the trustee would have more flexibility in managing the property than would someone acting under a power of attorney.
In conclusion, while certain myths and exaggerations concerning the abuses of probate exist, the living trust has a distinct purpose as the best vehicle to use in anticipation of the creator's becoming incapacitated or the creator's desire to place the management of his or her assets in the hands of another.
Arthur D. Sederbaum is a partner with the law firm of Patterson, Belknap, Webb & Tyler, New York, N.Y.
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|Author:||Sederbaum, Arthur D.|
|Date:||Nov 1, 1993|
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