Inman News Features
Before my mother died several years ago of ovarian cancer at age 89, she was very concerned her imminent passing would be "no trouble." Several times during the year before her impending death, we discussed her estate and how she had arranged everything.
While she was in the hospital for what we both knew would be the last time, she made me go to the funeral home to arrange her burial. No son or daughter enjoys such a visit.
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The next day when I visited my mother in the hospital, she asked if the arrangements were complete. I assured her everything was arranged. That night, she passed away quietly in her sleep.
Little did I know, real estate complications would develop after my mother died. It was my understanding all her assets would pass according to her living trust, of which I was the successor trustee. But there was just one little problem.
The title to her condominium had not been transferred into her living trust. Later, I discovered her Minnesota attorney (who predeceased my mother so I couldn't complain about his bad advice), failed to transfer her condo title into her living trust. Her will applied.
The result was the condo title had to go through probate court procedures which took almost a year. Fortunately, during that time there was no need to sell the condo to pay estate taxes or other debts.
But the unnecessary probate court costs and delays could have been avoided by deeding that condo title into her living trust.
THE TWO MAJOR BENEFITS OF A LIVING TRUST. The reason I share this personal story is to show how a revocable living trust can avoid probate court costs and delays if all the decedent's major assets are part of the living trust. Probate court cost and delay avoidance is the first major benefit of a living trust for your primary assets.
Before proceeding, let me explain many major assets such as bank accounts can also avoid probate by use of a "payable on death" clause. However, not all states allow payable on death provisions for bank account and stock brokerage accounts. But such clauses do not apply to real estate.
The second major benefit of a revocable living trust occurs if the trustor becomes incompetent, such as with Alzheimer's disease, and is unable to manage his or her affairs. Then the alternate or successor trustee named in the living trust takes over management of the living trust assets.
For example, suppose hypothetical husband and wife Ronnie and Nancy own title to their home. Ronnie acquires Alzheimer's disease, eventually becoming incompetent and unable to even recognize his wife. Nancy tries to take care of Ronnie at home. However, the burden becomes too much. She moves him to an excellent care facility. But the cost, not covered by Medicare, is very high.
After consulting her legal and financial advisors, Nancy realizes their home should be sold to pay for Ronnie's care. However, because Ronnie has become incompetent, he cannot sign a deed to sell the home. What can Nancy do? Her only alternative is to arrange a court-appointed conservator to represent Ronnie for the sale of their home.
But this costly and time-consuming result could have been avoided if Nancy and Ronnie had created a revocable living trust while Ronnie was still competent.
IS JOINT TENANCY BETTER THAN A LIVING TRUST? Many husbands and wives hold titles to their homes and other major assets in joint tenancy with right of survivorship. They think joint tenancy substitutes for a will or a living trust. Wrong!
When one joint tenant dies, the surviving joint tenant owns the joint tenancy assets. In most states, all that need be done is for the surviving joint tenant to record an affidavit of survivorship and a certified copy of the deceased joint tenant's death certificate.
However, if both joint tenants die at the same time, such as in a plane crash or auto accident, then each joint tenant's share of the property becomes subject to their will in probate court. This problem can be avoided by use of a living trust created before the deaths.
As explained above, another problem occurs if one of the joint tenants becomes incompetent, then the other joint tenant cannot convey title without a court-appointed conservator.
PROBATE COSTS CAN BE VERY EXPENSIVE. Although some states have simplified probate procedures for small estates, such procedures don't avoid probate disputes such as will contests.
For example, Elvis Presley left a $10.2 million estate. But his probate court costs were $7.2 million, leaving only 28 percent of his estate for his heirs. Another example is Marilyn Monroe, who left an estate over $1 million, which took 18 years to probate, leaving just $101,000 for her heirs after lawyers and others took their fees.
So far, J. Paul Getty's estate has paid over $40 million in probate costs to lawyers and others. Even frugal penny-pincher John D. Rockefeller's probate expenses cost 64 percent of his huge estate.
ADVANTAGES OF LIVING TRUSTS. Additional living trust advantages include:
1—Avoidance of multi-state probate proceedings. When you die, if you own real estate in more than one state, your estate will probably require costly probate court proceedings in each state where you own property.
2—Privacy is maintained. Although the contents of a personal will become public knowledge when it is filed with the court for probate, except in a few states a living trust never becomes public knowledge.
For example, when multi-millionaire real estate tycoon Bing Crosby died in 1978 with all his major assets in his living trust, the public never learned about his vast assets or who received them.
3—Living trusts discourage litigation because there is no probate court proceeding. Distributions by the successor trustee are non-judicial so court proceedings become difficult.
To illustrate, if the late CBS-TV personality Charles Kuralt held his assets in a living trust, the expensive lawsuit between his widow and his mistress over his Montana ranch probably never would have occurred.
4—Living trusts can be revoked or changed at any time before death. The inter vivos (among the living) trust remains flexible until the trustor becomes incapacitated or dies.
DISADVANTAGES OF LIVING TRUSTS. There are two primary drawbacks of living trusts:
1—Depending on the complexity of your assets, the attorney fees to create a living trust vary wildly between $500 and $2,000, sometimes more. An excellent do-it-yourself book is "Make Your Own Living Trust, Fifth Edition" by attorney Denis Clifford (Nolo Press) available in stock or by special order at bookstores, public libraries, and www.amazon.com. But be sure to transfer title to living trust assets into the living trust, called "funding the living trust."
2 — When refinancing real estate held in a living trust, some mortgage lenders require the title to be momentarily taken out of the living trust so the borrower, rather than the borrower as trustee, can sign the paperwork. Then the title can be transferred back into the living trust. It's stupid, but some lenders require such nonsense title transfers.
3 — Living trusts do not save on estate taxes. Contrary to widespread myth, living trusts do not save on federal estate taxes. But present law allows up to $1 million of a decedent's assets to be transferred free of federal estate tax. Transfers upon death of a spouse to the surviving spouse are tax-free, regardless of amount. A married couple can transfer up to $2 million of assets free of estate tax, thanks to use of A-B living trusts.
4 — If the deceased leaves unpaid bills, the debtor claimants can pursue living trust beneficiaries because there is no probate court proceeding to cut off debtor claims. When a deceased dies with substantial unpaid debts, a probate proceeding is often desirable to resolve any debtor claims.
Further details are in my special report, "Pros and Cons of Revocable Living Trusts to Avoid Probate Costs and Delays for Your Heirs," available for $4 from Robert Bruss, 251 Park Road, Burlingame, Calif. 94010 or by credit card at 1-800-736-1736 or instant download at www.bobbruss.com.