Living Trusts

LIVING TRUSTS VS. WILLS: WHAT'S THE DIFFERENCE?

Prepared by the National Consumer Law Center. For more information on this and other topics, visit their website at www.nclc.org.

Living trusts and wills allow you to choose how your property will be distributed after death. Although there are other issues to consider, the primary advantage of a living trust is that it can make it easier to avoid probate. Property transferred into a living trust before death does not go through probate. However, this may not matter to you because you may not have to worry about probate in any case.
It is important to understand that: 

• A living trust is not the only way to avoid probate. The rules about probate and avoiding probate are often different in different states. It is best to check with a lawyer to find out more information. 
  
• Most states have rules that allow small estates to be administered outside of probate or through an "expedited" probate process. These rules are different in each state. You can find out more from the Clerk (or Register) of Wills or from a local attorney. 

MAKING CAREFUL DECISIONS
Deciding whether to purchase a living trust is difficult. You will need to weigh the likelihood that your estate will be probated after your death against the cost of purchasing a living trust now. Try to stick to the facts and be wary of the exaggerated and often outrageous claims that living trust companies make about their products. Claims to look out for include: 

• False Claims About the Probate Process. 
  Many companies use advertising slogans such as "The Choice is Yours: Sacrifice Money to the State or Protect Your Loved Ones." These companies are usually exaggerating the costs and hassles of probate. In any case, you may be able to avoid probate in other ways. 
  
• False Claims About Tax Benefits. 
  Many companies advertise the tax benefits of living trusts. The truth is that a simple living trust (as opposed to a more expensive and complicated tax-saving living trust) has no effect on taxes. 
  
• False Claims That Living Trusts Will Shelter You From Creditors. 
  A living trust will not automatically protect your assets and property from creditors. 
  
• False Claims About the Cost of Setting Up A Living Trust. 
  Living trusts can be expensive. Lawyers often charge five or six times the cost of a will. Depending on the size of your estate, the costs of a living trust may be much higher than the cost of probate. 
  
• False Claims About How Much Time it Takes to Set Up A Living Trust. 
  It can take a lot of time to set up a trust properly. Most important, writing up the document is not enough. The trust will not be valid until property is transferred from your name to the trust. This is called "funding the trust." 
  
• False Claims That You Don't Need a Will If You Have A Living Trust. 

Even if you decide to buy a living trust, it is still a good idea to have a will as a back-up. 

If you decide you want to go ahead and find out more about setting up a living trust, keep these basic rules in mind: 

• Consult a lawyer if possible. Make sure the lawyer has experience in estate planning issues. It is also important to ask about how a living trust may affect your eligibility for Medicaid nursing home benefits later on. 
  
• Find out more about the company that is selling the trust. One way to do this is by contacting your local Better Business Bureau. You might also want to check with your Attorney General or local consumer protection agency to find out whether complaints have been filed against this company. 
  
• Beware of companies that use names that sound a lot like legitimate organizations such as AARP. Companies will often try to use these names to make you think that they are affiliated with AARP or other senior rights organizations. 
  
• Beware of self-help living trust kits. These kits are usually not a good idea because they are not designed for your unique needs. There are a few high quality products available, but many are rip-offs. Be careful. 
  
• Avoid giving out private information when you're shopping around. Many companies will use the living trust as an excuse to find out more about your assets and then try to sell you other products such as annuities or life insurance. 
  
• If someone is trying to sell you a living trust, ask if the seller is an attorney. Some states require that only attorney sell living trusts. In any case, it is against the law if the seller is not an attorney but tells you that he is. 

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