Living Trust as the enemy?
You recently read here that I believe living trusts can be a more effective tool for estate planning than wills. I could write month after month on the details of why living trusts are better than wills.
However, I once heard a respected estate planning attorney say, “Living trusts have become the number one enemy of estate plans that work.” I wholeheartedly agree. Let me explain.
An anti-attorney movement
Traditionally, people viewed estate planning as getting documents prepared. They would go to their attorney, state what they wanted, and pay the attorney to prepare a will.
Then the “living trust revolution” occurred. Probate (with attendant attorneys’ fees) and the death tax were cited as the reasons everyone should abandon wills and use living trusts. Cautious people would still use an attorney to prepare their trust. For others the whole point was to avoid attorneys. Do-it-yourself trust forms were published. Non-lawyers began selling living trusts so you would not have to go to an attorney at all.
The impression given was that merely having the trust was the cure all. One lady summed it up nicely when she said to me, “I thought if you had a living trust you never had to see an attorney again.”
I started calling it the Magic Book Theory. The living trust was perceived—unrealistically—as a Magic Book that automatically solved your estate planning needs.
“We already have a trust”
Bill and Mary signed a living trust based on the Magic Book Theory. They believe this document will cause their estate to avoid probate, avoid taxes and be divided among their children automatically.
A friend asks, “Do you think your estate plan should be reviewed? I hear the new tax law really changed things.” Bill replies, with a smile, “We have a trust.” They buy 80 acres from a neighbor, who asks: “How do you want the deed made out?” “Put both names on the deed; we did a trust,” say Bill and Mary. As they get older, their children ask “What if you go to a nursing home? Will the farm have to be sold?” “Oh no,” says Mary knowingly (but incorrectly) “We have our trust.” Their accountant suggests that they should make sure their estate plans are in order. They smile proudly: “We already did a living trust.”
As the years go by, despite the many changes that confront them—in laws, in assets, in life circumstances, and in new opportunities to achieve their objectives—Bill and Mary rest in the false security: “We already have a trust.”
After Bill and Mary die, their children dust off the trust they find in their parent’s papers. They have no idea what to do with it. They go to an attorney and discover that they have to file late income tax returns. There will be probate because assets were not titled correctly. Taxes will be due that could have been avoided. The children will receive assets that are needlessly exposed to lawsuits, divorces and other predators. The legal fees to administer the trust may well exceed what probate fees would have been.
Why? Not because a living trust was not a good idea. It probably was. But the document became an excuse to avoid professional advice. The living trust insulated them, they assumed, from legal fees.
The solution?
No document—will or trust—can be written today to address all future changes. A document is no substitute for a relationship. A living trust is just a legal machine and, like farm machinery, needs routine maintenance.
You must continue to receive appropriate assistance from trustworthy professionals. If you don’t have a trusted attorney, find one. This relationship should include: regularly updating your living trust; advising you of changing laws; cautioning you about pitfalls; bringing to your attention evolving opportunities; assisting you with titling of new assets; and preparing your heirs to receive the estate.
Ask your attorney to commit to helping you systematically instead of on a crisis-only basis. Appropriate assistance along the way will actually reduce your overall legal fees and assure that you get the best possible results.
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Article authored by Curt W. Ferguson and originally published in the Prairie Farmer magazine, December 2006 issue
