DO I NEED A LIVING TRUST?

In most, if not all, of the estate planning seminars I present, someone asks about Living Trusts. It seems as if everyone knows a friend or family member who has a living trust, or was advised to have a living trust.

But the questions is: Do you really need a living trust? People tend to believe they should have a trust to avoid probate. “I want to avoid any hassle when I die. I heard that probate is complicated.”

If you’re thinking about placing your assets into a living trust just to avoid probate in New Jersey, stop thinking. You’re worrying too much.

First of all, probate in New Jersey is far from complicated. To “probate” a Will simply means that you submit the Will to the Surrogate, providing the Surrogate with some basic information, and the Surrogate issues documents called “Letters of Executorship.” With those letters, the executor has access to the decedent’s assets. Probating a Will takes about 30 minutes and costs about $100.

“But doesn’t a living trust make it easier for my children after I’m gone?” Well, it may, but probably won’t and here’s why. In order for a living trust to work as a probate-avoidance technique, most every asset you own would need to be “titled” in the name of the trust. To understand this, you’ll need to know trust terminology.

When speaking of trusts, we talk about three parties: the “Grantor,” the “Trustee,” and the “Beneficiary.” The “Grantor” is the person whose assets are used to fund the trust. The “Beneficiary” is the person for whom the trust was designed to benefit. The “Trustee” is the person who administers the trust’s assets and income for the benefit of the Beneficiary. With living trusts, the Grantor, the Trustee, and the Beneficiary are typically the same person, during that person’s life. When the person dies, a successor Trustee steps in and distributes the assets held in the trust to the successor Beneficiaries, for instance, the children.

To successfully avoid probate, a person would need to title almost all of their assets in the name of the trust. For example, if Joe Smith wanted to create a living trust to avoid probate, he would have to title his house in the name of the trust (Owner: “Joe Smith, Trustee, of the Joe Smith Revocable Living Trust dated February 16, 2001”); he would have to title his bank accounts in the same fashion; he would have to title his stock similarly, etc. (Question: how do you title a car in the name of a trust and get an insurance company to issue insurance to the trust? You probably can’t.)

If Mr. Smith missed one assets, failing to title that asset in the name of the trust, that asset would be a “probate” asset. If Mr. Smith did not have a Will that asset would pass by intestate succession and an administrator would need to be appointed to probate the asset.

Since Mr. Smith did not have a Will in which he waived the requirement that his executor could serve without the need to post what is called a “bond,” the administrator would have to post a “bond,” which is similar to a policy of insurance. That would cost his estate money, leaving less for his children.

So, what purpose does a living trust serve? It’s a great disability planning technique. And, it also avoids the need for “ancillary probate,” for New Jersey residents who own real estate in states other than New Jersey. But these are topics of future articles. Misconceptions often make estate planning more complicated than it is.

A living trust is only one of many estate planning tools. Choosing the right approach depends on your goals, assets, and family circumstances.