All the talk and excitement about living trusts has given rise to certain misconceptions about living trusts. We will refer to these myths collectively as "The Living Trust Myth."
"Living Trusts Eliminate Costs, Administration Chores, and Lawyers"
This is the number one myth of living trust. At one time, many estate planning attorneys, including ourselves, subscribed to this myth. But then the clients for whom we had prepared living trusts over the years started dying. From our experience in handling dozens of living trusts after death, we soon learned the truth: there is work to be done and there are costs and expenses involved. Does it cost as much, take as much time, and require as much work as a probate? In most cases, the answer is no. But a living trust does not waive a magic wand over your estate making all your administration troubles disappears.
What has fueled popularity of living trusts is the publicís fear of probate in particular, and its even more pervasive fear and distrust of attorneys and the court system. All to often, the trust mills and other non-attorney trust promoters exaggerate these fears to entice unsuspecting consumers into buying their living trust packages. Thus, to understand the allure of living trusts, one must first understand what probate is and why everyone is so afraid of it.
Probate is simply a court procedure whereby a court-appointed personal representative performs three distinct functions: (1) inventory and appraise the decedentís assets; (2) pay the decedentís debts and taxes; and (3) distribute the remaining assets to the decedentís beneficiaries. People often wonder, "why do we need probate?" Imagine for a moment the chaos that would result if upon death a personís relatives, creditors, and the taxing authorities all started grabbing assets and fighting over who gets what, with no civilized system in place to resolve these issues. Probate is the system that developed in England in the Middle Ages to handle the disposition of a personís assets at death. Since our laws are derived from the law of England, the probate system has been passed down to us and is still used today.
Living trusts avoid probate because, unlike a will, the trust does not have to be proved in court and the successor trustee need not be appointed by the court in order to take charge of decedentís affairs. In the typical case, the administration baton is simply passed at death from the settlor-trustee to a named successor trustee with no court involvement. The successor trustee then assumes the job of carrying out the settlorís instructions as set forth in the trust instrument.
What functions does the successor trustee perform after the death of the settlor? There are three: (1) inventory and appraise the decedentís assets; (2) pay the decedentís debts and taxes; and (3) distribute the remaining assets to the decedentís beneficiaries. Do these functions look familiar? They should. These are exactly the same three functions that must be done in a probate!
In reality, the only difference between probate and post-death administration of a living trust is that probate is supervised by the court. There is a structured, formal system with rules for handling estate administration. Living trust administration is not supervised by the court.
This article has been provided by David Gaw and the Law Offices of Geraldine E. Champion
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Geraldine E. Champion, Attorney at Law The Law Offices of Geraldine E. Champion 182 South 10th Street Grover Beach, CA 93433 Tel: (805) 473-4747
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