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at revocable living trust

Pros advise careful look
at revocable living trust

Proponents say the revocable living trust saves thousands of dollars in legal fees and avoids costly, time-consuming probate. Others say the benefits are overstated and oversold.
As with all things legal, there are no simple answers, attorneys, financial planners and accountants say. But for the person who makes estate planning part of the retirement-planning process, experts encourage full exploration of the options.
Wills and revocable living trusts differ in several key ways.
A will is a legal document in which an individual gives directions about how his or her property should be distributed after death. It names a personal representative, usually called an “executor,” who is responsible for making sure the property is distributed appropriately. It does not take effect until after the death. The will must be “proved” through a court process, called “probate,” which can take time and generate considerable legal fees.
The revocable living trust is a legal estate-planning document that takes effect during a person’s lifetime. The person who creates the trust, often called the “settlor” or “grantor,” transfers his or her property to the trust and names a trustee who manages the property during the grantor’s lifetime. The grantor can name himself as the trustee and serve in that capacity as long as he remains legally competent. A successor trustee must also be named to distribute the trust property after the grantor’s death.
The revocable living trust can be changed or amended at any time during the grantor’s life (as long as he is legally competent) and usually does not have to go through probate. The assets often can be distributed in a timely fashion after the grantor’s death. Revocable living trusts cannot protect assets from being used to pay for long-term care, although some irrevocable trusts can be set up to do so.
Whether one has a will or a trust, the only assets included are those held solely in the grantor’s name. Assets held jointly will pass directly to the other party, as will life insurance, IRAs and other assets that have a named beneficiary.
“The revocable living trust can be a valuable estate-planning device,” says attorney Karen Schaefer, a partner in Lacy, Katzen, Ryen and Mittleman. “But it’s not the panacea that a lot of people think it is. People want to hear that it’s simple, takes a short time, saves money and solves all their problems, but that’s really not true.”
A proliferation of public information, some of it misleading, has created misconceptions about the cost-saving benefits of revocable living trusts vs. wills, Schaefer says.
“Many people have the impression that once the trust is set up, there will be no administrative duties or costs after the death, which is untrue,” she says. “Although probate may not be an issue, many other activities need to take place whether the individual has a trust or a will.”
Another misconception is that people think if they have paid an attorney a sizable fee to set up a revocable living trust, that they have gotten a complete estate plan.
“All they have done is set up a trust,” Schaefer says. “A lot of estate-planning issues–like income taxes, estate taxes, life insurance and long-term care issues–have not been addressed. The trust is only one piece of the plan.”
Steven Schwartz CPA, a principal in Cortland L. Brovitz & Co. P.C., sees the revocable living trust as an excellent vehicle for organizing one’s financial life while one is still healthy.
“The living trust provides a really good way to get your financial house in order and to set up a structure for when a person can no longer take care of his own financial management,” he says.
But he adds that an up-to-date will, combined with an effective power of attorney and a health care proxy, can offer many of the same benefits without the hassle and expense of transferring the titles of all one’s assets to the trust.
“Some people think that everything is complete once the trust document is drafted,” he says, “but all the assets still need to be retitled to the trust.”
Like Schaefer, Schwartz questions whether revocable living trusts cost less than wills.
“People have been led to believe that there is a cost-saving incentive to set up a trust because it avoids the cost of probate, but I’m not sure if that is real or illusory,” he says. “The costs are incurred at different points in the process but I have no clear sense that they are any less.”
The legal fees to draft a will usually are considerably less than those to create a revocable living trust–some $2,000 to $3,000 for a fairly straightforward trust, experts say. But the cost to probate the will, depending on its complexity, may be higher. However, many of the factors that contribute to the time and expense of probate can be avoided by converting assets to joint tenancy and other means which are less expensive than establishing a trust.
Probate costs should not be the motivating factor in choosing an estate-planning vehicle, says attorney Schaefer.
“Many issues in an individual’s estate have larger significance than probate costs alone. You don’t want to save $5,000 on probate to spend $200,000 on unnecessary estate or income taxes,” she says. “You need to consider everything.”
In light of all the issues, are there some people for whom a revocable living trust is clearly the right choice?
John Best CLU, Ed.D., a principal in Times Financial Planning, thinks there are.
“Older people who are close to needing care in a nursing facility and are becoming unable to manage their assets are good candidates for living trusts,” he says. “A living trust might make it easier than a power of attorney to manage this person’s affairs. There would be more immediate control and less hassle.”
Best also thinks revocable living trusts are good for people who have specific ideas of how their money should be managed after their death.
“If a father wants his daughter to manage the assets on behalf of his wife, for example, a living trust might be a perfect vehicle for that family,” he says.
Best believes that young, healthy individuals do not need to think about creating living trusts. An up-to-date will, a power of attorney and a health care proxy should be enough.
“People shouldn’t let unfounded fears of costs drive them into a living-trust situation,” Best adds. “Just because you read about something or go to a seminar, it doesn’t mean that’s what you should utilize.
“I recommend that people talk with their attorney and financial planner, get second opinions, and then decide what is really right for them.”
(Ruth Morris Myers is a Rochester-area free-lance writer and a partner in Guthin-Myers Public Relations.)

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