Estate Planning, Living Trusts & Alternatives

Planning for when I die is something I’ve procrastinated for years now. Well, I take that back. My husband and I  quickly put a will together before a trip out of the country a couple years ago. We wanted to be sure our daughter would be cared for in the way we  intended in case we didn’t come back.

I decided it was time to do a little research on living trusts. I wanted an instrument that would side-step the public and sometimes long and expensive probate process. Interesting to note that while researching, I didn’t find any ‘lay-people’ blogging about this – seemed only attorneys or people selling products were talking about it.image

There are a multitude of on-line resources, but I also got a great book from Nolo, Make Your Own Living Trust, written by Denis Clifford (also available at your local library). The book comes with a CD containing all the forms you need should you decide to tackle this project yourself. If you complete the process on your own, it’s probably a good idea to have an attorney, or other professional certified in estate planning to look it over.

image For those of you who want an on-line process, you could try either Nolo’s or LegalZoom’s websites where they guide you through the process, asking pertinent questions. They will figure out for you which forms are applicable and after all questions are answered, you can decide whether or not you want to purchase their package. Not quite sure why one would want to invest a chunk of time to do this before deciding to purchase the service or not. Nolo charges $170 and LegalZoom has packages from $219 and up. I didn’t choose this route, so I can’t review the process.

It helps me to make a ‘Pros & Cons’ list, so here we go…(this column is my opinion and conclusions after reading the book and on-line sources, I’m not a lawyer)

Pros of a Living Trust

  • The grantor, or trustor (you), have complete control over the trust and are able to make changes to your living trust at any time
  • Private – upon death, the details of your trust remain private, no court appearances, no probate and no attorney to probate a will for you. The successor trustee (person you name to take over upon death), executes your trust for you. The successor trustee and beneficiary can be the same person.
  • Immediate – there is not a waiting period after your death. Your wishes can be carried out right away
  • Out of state real estate can be transferred without probate (this is usually the case according to the author)
  • No trust recordkeeping is required of you during the lifetime of the trust. No special forms need to be filled out for the IRS, etc. Keep doing what you were doing.
  • You have the ability to name someone to manage trust proceeds for a young beneficiary (Nolo defines young as up to age 35). This is not the same as appointing a guardian-more on this later
  • Ability to transfer LLCs and closely held corporations into your trust (consult the by-laws of your entity to accomplish this)  Romantic couple

Cons of a Living Trust, or more aptly, what a living trust won’t do

  • It will not reduce taxes owed. The personal estate tax exemption allows a dollar amount of property to pass tax-free, no matter who it is left to. The amount for 2009 is $3.5 M, in 2010 there is no limit (crazy, I know). Then in 2011 it goes to $1M (unless congress extends the repeal). If your estate is over this amount, perhaps an AB Living Trust could work for you. If you fall into this category, you certainly will want to consult with an attorney.
  • It can be a tedious process to do all the paperwork necessary to legally change the names of your accounts and real estate to your Living Trust name. As time goes on and you buy and sell property, open and close bank and brokerage accounts….well you see what I mean.
  • You have the responsibility for making sure your living trust is up to date and securely filed away and that the right people know the location of your trust.

Other Ways to Avoid Probate

(not a complete list)

I liked this book because the author points out alternatives to a living trust and has questions you ask yourself to see if a living trust is right for you. He went on to mention other ways to avoid probate.

You may or may not know that life insurance and IRAs do not have to be probated.

If you have assets in banks or brokerage houses, there are forms called “Pay On Death”, POD, or Transfer On Death, TOD that will transfer these types of assets directly to your beneficiary. The form is similar to a life insurance beneficiary form. This form is available in all states (except Texas-sorry). If you use these forms, you wouldn’t need to put bank and stock brokerage accounts in a living trust. These are relatively new.

Several states have a similar form available for transferring real estate to a beneficiary upon death. It’s called a transfer-on-death real estate deed and is available in Arizona, Arkansas, Colorado, Kansas, Missouri, Montana, Nevada, New Mexico, Ohio and Wisconsin. Hopefully, other states will make this available as time goes on.

What About A Will?

The author also pointed out that in addition to forming a living trust, you will certainly want to have a ‘Back-up Will’. This will (not subject to probate), resides within your living trust and can be used to carry out your wishes for distributing your personal property and effects, i.e. I’ll let my sister have that special Christmas ornament she said I swiped years ago! It’s also used for more serious things like designating a guardian for minor children. You can construct it to cover any property or accounts you left out of the trust, but that belong to you.


We are thinking of using both the Living Trust as well as using the POD and TOD forms to take care of bank and brokerage accounts. Less paperwork. Since we’ll be doing the financial side of things, it would be  a good time to fill out a Durable Power of Attorney and some medical directives. Just get it all done.

Here are some resources and further reading:

Why You May Not Need A Living Trust

Podcast  on the Nolo site of an interview with author, Denis Clifford regarding need for Living Trusts

Standard Legal’s take on ‘Pay On Demand’ vs. Living Trusts

FDIC Coverage for Living Trusts explained by a lawyer

FDIC Site explaining new rules

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