- Living Trusts: Myths and Realities
- April 15, 2014 | Author: Michael L. Mixell
- Law Firm: Barley Snyder - Reading Office
Revocable trusts have become increasingly popular as substitutes for wills in estate planning. Many people believe that by creating a revocable living trust, naming themselves as trustees, and transferring their assets to the trust, they will save taxes, simplify the administration of their estates, and save money for their children or other beneficiaries. Unfortunately, these beliefs are not based in fact, and are typical of the myths that surround so-called “living trusts.” Below is a summary of some of the common myths and realities of living trusts.
Although this is true, the only reason to avoid probate is to save time and money.
Even with a living trust, it is rare to avoid probate. There are usually one or two assets outside of the trust that require the estate to be probated.
Probate costs in Pennsylvania are very reasonable. For example, a $1 million estate will have an average probate fee of $500.
The probate process in Pennsylvania is quick and efficient and does not require the intervention of the Court unless a matter is contested.
Delays in settling an estate usually result from required tax filings and the sale of an illiquid asset. Even with a living trust, death tax returns have to be filed.
In Pennsylvania, a copy of the inheritance tax return remains filed in the Register of Wills office in the local courthouse. You are required to include trust assets on the return and attach a copy of the trust. These files are open to the public.
Assets of a living trust are still subject to Pennsylvania inheritance tax and federal estate tax. A good Will can save as much death tax as a good living trust.
Income tax is not saved during your life because the trust is ignored under federal and state income tax rules until you die.
Reduces legal fees and administrative costs:
The filing fees imposed at death are typically less when assets are held in a living trust. However, the cost to establish the living trust and transfer the assets to it during your lifetime are typically two to three times more than the cost of a Will.
Even with a trust, your estate will incur fees for the preparation of the death tax returns and to transfer the assets to the beneficiaries.
A living trust provides a management vehicle for assets while you are alive, but this can also be achieved with a properly drafted Power of Attorney.
Having a living trust means you may avoid the cost for guardianship of the estate, but you still may need to have a guardian of the person appointed, if you become incapacitated.
A living trust is only really effective if all of your assets are in the trust. Most people will still need a Power of Attorney.
If you own assets in two or more states, putting those assets in a living trust can save significant costs following death because probate is avoided in the second state.