By: A.J. Cook

Should you choose a living trust instead of a will?

These days it's fashionable to select a living trust - as opposed to the old-fashioned will. But is it better?

A living trust is a revocable trust set up during your lifetime. You transfer what you own to it, receive its income and withdraw assets when you want. You may act as trustee and when the grim reaper cuts you down, the assets are distributed to whomever you named in the trust document.

Here's how it compares to a will:

Misconceptions. Too many people believe too many misconceptions about a living trust.

• Saves tax dollars. It does not save tax dollars that you couldn't save, more easily, with a will.
  
• Fast distributions. Distribution of assets to heirs may be fast or delayed, like with a will, until tax returns are filed, assets are collected and debts paid.
  
• Efficient settlement. It does make it more difficult for disgruntled heirs to contest distributions, but creditors have an advantage. They have years to sue trust beneficiaries, but only four to six months to file claims against a will.
  
• Avoids expensive probate costs. Probate is the process of authenticating your will and settling your estate, supervised by a judge. A living trust might avoid probate court costs, which are expensive in some states. But this may or may not save the average heir much money for two reasons. It is difficult to avoid probate altogether because it's almost impossible to have all assets, including personal property, in the trust when you die. These omitted assets will require probate. Additionally, even if your heirs avoid probate court, other tasks associated with an estate will still be required, like valuing assets, preparing federal and state returns, settling creditors claims and resolving disputes among beneficiaries.
  
• Advantages. Avoiding probate could be handy if you want privacy for your affairs, but the two most important advantages of a living trust are the following:
  

If you own real estate outside the state of your legal residence, you will avoid the cost and major inconvenience of probate in the other state by having that property in a living trust. Second, if you become incapacitated, the assets in the trust would be managed automatically by the successor trustee you named in the trust document. There is, however, a simpler way to take care of this concern. If you don't want the continual bother of a living trust, you can create a "stand-by" trust and name someone to hold a durable power of attorney. This is a person who will act in your best interest if you can't. The stand-by trust starts without funds or assets - a hollow paper shell. When you need it, the person with the power of attorney transfers your assets into it to support you.

• Can Be Expensive. Living trusts can be complex and therefore expensive. The legal fees in setting up the trust and re-titling all your assets will cost more than a will. These expenses run from a few hundred to a few thousand dollars. Later the expense will come in bother and trouble. Many new assets you acquire will have to be titled to the trust.
  
• Probably Need a Will Also. If you go for a living trust, you should have a will also for two reasons. If you don't have all your assets in the trust at your death, a will is required to tell what to do with the excluded items. In addition, parents with minor children should have a will that says who should be the guardian.
  

Overall, living trusts are not the tax savings vehicle they are cracked up to be, and the expense savings might be small, if at all. But if it meets your needs, go with it.

The moral: Don't be too trusting.

A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.

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Released 07-05-99