Marketing Living Trusts for anyone and everyone is one of our biggest pet peeves of the estate planning industry. Some attorneys and financial advisors heavily market living trust and charge substantial fees to create them. The marketing materials usually focus on tax advantages and avoiding probate court. The reality is for most of these planner’s clients neither goal is achieved.
If you are like over 99% of Kentuckians and your assets are less $10 million dollars. For the 99% your estate will not owe any federal estate taxes. Further, Kentucky effectively abolished the state estate tax in 2005. Kentucky does have an inheritance tax but it is only triggered if your beneficiaries are not your spouse, children, grandchildren, parents, siblings, step-children, or certain charitable organizations. In short for 99% of us taxes are not a serious concern in estate planning.
The claim that your loved ones can avoid the hassle of probate court is also misleading. It is true that assets held in a living trust can be transferred on death to your loved ones without going through the probate process. Still, we find the “avoid probate” marketing misleading for two reasons. First, transferring all of your property into a living trust and acquiring any new assets in the name of the trust is a pain in the rear. Most people who have a living trust never transfer their assets to the trust or they acquire new assets that frare not put in the trust’s name. If this happens, as it usually does, your loved ones will still need to open a probate estate to handle those assets. Further, even if every asset is held in the trust, there is administrative headache associated with “settling the trust” and distributing the assets according to your wishes. Whether the property is in trust or goes through probate finding all the assets, dealing with banks, paying the bills, filing tax returns, etc. all still need to be done. This is time consuming whether the assets are in trust or going through probate. The additional burdens of probate court are overstated. Probate court is a straightforward and fairly efficient process for most small estates.
In short, for most people living trust are more trouble than they are worth. For most people they add cost to the estate plan without any real benefit.
There are certain situations where living trust are an important tool for estate planning but in our opinion the everyone should have a living trust industry is selling snake oil. If you are one of the few who would benefit from a living trust we will tell you so. Further, there is not a great deal of harm in a well drafted living trust if you understand what you are paying for and how they work. We are happy to prepare living trusts and the additional fees for creating them are reasonable. Just don’t be surprised if we tell you we think it is a waste of your money and time.