In last week’s article, I began a discussion of Living Trusts. Most people who have thought about estate planning have heard about Living Trusts; many believe that they need such a Trust in order to avoid the horrors of probate.

Yet, as I pointed out last week, probate, in and of itself, is simple, and the events that cause estate administration to be difficult—estate litigation, federal and New Jersey tax returns, etc.—cannot be avoid through the use of a Living Trust. So then, what is a Living Trust good for if not probate avoidance?

I think it’s an excellent tool for disability planning, particularly for a single individual. First of all, a Living Trust will name a successor Trustee in the event that the primary Trustee cannot serve. (Typically, with Living Trusts, the “Grantor” – the person who makes the Trust agreement and funds the Trust with his or her assets – and the initial Trustee is the same person.) Since a Trustee is the legal title holder to all property that the Trust owns, this provides for a smooth transition of ownership when the initial Trustee becomes disabled.

Furthermore, more so than a Durable Power of Attorney, a Living Trust allows a person to spell out in exacting detail how they would wish their property managed in the event that they became disabled. The Grantor could say, in essence, that he wants his property managed in such a way that should he become disabled, he is cared for in the least restrictive living arrangement possible, given his health and his desire to maintain the greatest degree of human dignity.

Because the Trustee is the legal title holder to the assets held by the Trust, there exists the potential for less obstacles being thrown in the way of the Trustee as to the management and use of the Trust’s assets. Sometimes, banks or brokerage houses will refuse or balk at honoring a Power of Attorney. They’ll claim that the language of the Power is inappropriate or that the signature of the “principal” – the person making the Power of Attorney – needs to have a Gold Medallion Signature Guarantee from a financial institution.

While obtaining such a Medallion Guarantee may have only been a hassle when the Principal was competent, if the Principal is now disabled, obtaining such a Guarantee is impossible, since incapacitated persons may not be able to sign legal documents such as Powers of Attorney. Now, the Principal’s family will find themselves in a fight with the brokerage house over the effectiveness of a Power of Attorney that very well may give them legal authority but which the brokerage house does not feel comfortable honoring. Incidents such as this can be greatly reduced, if not eliminated, through the use of a Living Trust.

Lastly, if a person owns real estate in a state other than New Jersey, and they die domiciled in New Jersey, there exists an “ancillary probate” issue that could be avoided with the use of a Living Trust. In cases such as this, without a Living Trust, the person’s Will needs to be probated in New Jersey, and an “ancillary probate” action must be initiated in the second state, for instance, Florida, in order to transfer title to the Florida property. However, if the real estate were titled in the name of the Trust, the need to initiate the ancillary probate action in Florida would be avoided. And, unlike New Jersey, Florida’s probate proceedings can be costly, so avoiding probate in other states can be a good thing.

A living trust can be useful in certain circumstances, but it is not a universal solution. Weighing the benefits against the effort involved can help determine whether it fits your overall plan.

Every estate plan should be based on individual circumstances. A living trust is one option, but not the only path to achieving your planning goals.