The primary advantage of having a living trust is to avoid probate. Probate takes time, and costs money. In my experience handling probate cases, the negative aspects of the probate process almost always outweigh any hypothetical benefits to the decedent’s beneficiaries.
When a person dies, the person’s assets can be divided into two categories:
- Probate property: Legal ownership of such assets cannot be changed without court assistance (‘probate”).
- Non-probate property: Assets may be transferred to intended beneficiaries through a variety of methods, without requiring court assistance:
- Asset that was jointly titled with a surviving person, with right of survivorship.
- Asset that had a surviving named beneficiary.
- Asset that a transfer-on-death or pay-on-death provision attached to its proof of ownership.
- Asset that does not have a legal proof of ownership that must be changed (usually personal property items, such as jewelry, home furnishings, etc.)
- Asset that has been transferred into a revocable living trust (“RLT”) during the deceased person’s lifetime.
In my opinion, the simplest, most cost-effective approach to avoiding the headache of probate is, for most individuals, to assign probate assets into a revocable living trust prior to death.
A survey of articles addressing this issue on the internet reveals many arguments for and against the widespread use of living trusts. Perhaps the best known proponent of living trusts is the television financial guru Suze Orman, who has asserted that “everyone needs a living trust”: http://www.cnbc.com/id/101069222. While I think this is too extreme, I think Orman’s basic points are valid for most Oregon families, especially those that own real property.
On the opposite extreme, some financial publications, such as Kiplinger’s, take an opposite, and in my opinion ill-advised, position that living trusts are usually unnecessary: http://www.kiplinger.com/article/saving/T021-C000-S002-why-you-do-not-need-a-living-trust.html. Disagreements I have with this article include the following:
- “An estate plan that includes a trust costs $1,000 to $3,000, versus $300 or less for a simple will.” Response: A basic estate plan in Oregon includes, in addition to a will or a living trust & will, a power of attorney and an advance directive for health care. My firm publishes its estate planning fee schedule online at http://hillsborolawgroup.com/law-firm/client-forms/fee-schedule-estate-planning.pdf, so that clients know they are not getting gouged based on the size of their estates. The fee schedule shows that adding a living trust to an estate plan may add $400-$700 to the total cost, which is far less than the cost of probate. Also, for our many clients with Hyatt legal insurance plans, the additional cost of a living trust is often less than $50, which represents the county recording fee to ensure their marital home avoids probate.
- “You can arrange for most of your valuable assets to go to your heirs outside of probate.” Response: While you can avoid probate by adding joint parties or rights of survivorship to all of your accounts, that doesn’t mean that this is an easy process, or a good idea. For example, adding a “transfer on death” provision to your real property may render your heirs unable to sell the real property for two years after they inherit it. Or they may be sued by your creditors after you die. Or they may be unable to agree on how to jointly own the property after your death, sue each other, and never talk to each other again.
Considering the competing views, my overall analysis is as follows:
- Probate is an expensive headache that should, in most cases, be avoided.
- For most Oregonians, a living trust is the most cost-effective and simplest tool to avoid probate.
- Unfortunately, some attorneys charge excessive fees for preparing living trusts, or make the process more complicated than necessary.
- If you can purchase Hyatt legal insurance, the cost of setting up a living trust should be negligible.
- If you do not have Hyatt legal insurance, unless your estate is unusually complex or high in value ($5 million plus) , you should not pay more than $1,750 for your estate plan including a living trust.