Coastal Senior is a monthly periodical published in Savannah, Georgia and circulated throughout the Georgia and South Carolina low country. Bob Mason is its legal columnist.
Down in the corner next to the obituaries sits the ad. The next day it pops up opposite the Opinions section. FREE SEMINAR! FREE LUNCH! PROTECT YOUR ASSETS! Then the ad goes on to scare the daylights out of you. How on earth could that dunderhead lawyer of yours have not given you such IMPORTANT INFORMATION?
The ad tells you that with a Living Trust you can –
- Avoid Probate!
- Avoid Triple Taxation!
- Maintain Confidentiality!
- Leave Your Estate To Those YOU love (and NOT –gasp- to those the State chooses)!
- Manage Your Affairs If You Become Incapacitated!
Living trusts, revocable trusts, life trust, family protection trust. They come with different names. My favorite slang term is “The $3,000 Notebook”. If you have a black notebook with tabs in it containing a bunch of documents you don’t really understand for which you paid thousands after attending a free seminar – you may be the owner of a $3,000 Notebook.
A living trust is a trust that you set up (maybe jointly with a spouse) usually naming yourself as trustee. The trust says you can freely put assets in and take assets out. There will be provisions that detail how your estate (or whatever you’ve put in the trust) will pass when you do (pass, that is). If you have a big estate (say, north of $2 million) there should be some tax planning provisions in there. Of course, I’ve seen people with modest estates that have bought trusts containing tax provisions that would do Warren Buffet proud.
Look back at the list of commonly advertised claims above. I’ll take them one at a time. First, YES, you can accomplish all of those things with a living trust. But other than avoiding probate and maintaining strict confidentiality, you can also accomplish all of those goals with a will.
Probate is the process available in all states by which a court (in Georgia it is the Probate Court) supervises the collection of estate assets, the payment of creditors and final distribution of assets. It applies to “probate” assets only.
A bank account solely in my name is likely going to be a probate asset when I die. It’ll go to whomever I name in a will, or if I don’t have a will (meaning I’ve died intestate) to whomever the rules say, perhaps split between my wife and child.
On the other hand, a bank account that says “Pay Ann on Bob’s death” will be a nonprobate asset because it doesn’t matter what my will says or what the intestate rules say (Ann will get the bank account even if my will leaves everything to my child). Likewise, a living trust is a nonprobate asset because anything in it will pass without regard to a will or the rules of intestate succession.
Remember: Intestate means “without a will.” Which reminds me of the following encounter with a client. “I’m so sorry about your Daddy, Wanda. Did he die intestate?” “No, Mr. Mason, he died over in South Carolina.” Bad joke. Couldn’t help it.
In some states the probate process is a bit like a head-on collision with an 18-wheeler on I-95. Something you ought to try to avoid if possible. A properly drafted and funded living trust is a good way to avoid that (probate, not the collision).
Georgia, on the other hand, has a user-friendly probate process. By this I mean the probate process is often cheaper and easier than establishing and tending to a living trust. Often it just doesn’t make sense to set up a living trust simply to avoid probate.
Next claim: Avoid triple taxation. If you have an estate worth less than $2 million, you won’t have any estate tax (unless you gifted millions while you were alive). It doesn’t matter whether you have a trust or a will or nothing. If you have a larger estate, a living trust has NO tax advantage over a will. If you are worth more than $2 million why are you at a free-lunch-seminar?
Next claim: Maintain confidentiality. Fair enough. The probate process is public. You can go down to the courthouse and insist on reviewing an estate file if you’re so inclined. Most people don’t care.
Next claim: Leave your estate to those you choose, not to those the state selects. You can do that with a will. In fact, it is simpler with a will. The worst you can do is nothing, however. Remember, if you die without doing anything, the kids will get a cut along with Mama.
Final claim: Manage you affairs if you become incapacitated. True, a living trust can help. But so can a power of attorney at a fraction of the cost.
Last caution: Living trusts do nothing for asset protection. Zero.
All that being said, living trusts or revocable trusts can sometimes be useful. Extremely so, in fact. If your trusted attorney recommends a revocable or living trust and can give you some solid reasons to backup the recommendation, then by all means listen to her. She knows your situation better than someone who fed you a free lunch.
Bob Mason, certified elder law attorney by the National Elder Law Foundation, practices in Savannah, Georgia, and Asheboro, North Carolina. Email Bob at ram@masonlawpc.com or visit www.masonlawpc.com.
