Most Texans with valid properly drafted wills don’t need to be scared of Texas probate. While a living trust can be a great probate avoidance device, that's not the only thing that it can do. The other reason that I recommend living trusts is because a bank may refuse to accept a financial power of attorney, even if it's valid and properly drafted. This risk is greatly diminished with a living trust, because the trust already owns the property. If the bank denies the trustee access to the property, the trustee would be able to sue the bank.
Living trusts are also generally more complicated to draft than a will. And, many times you will need a special kind of will called a “pour-over” will that pours over your assets into the living trust. This causes the attorney’s fees to be higher for a living trust than for only a will. Because of this, it’s important for the client to understand some of the good indicators that show where a living trust is a necessity, versus a living trust being a convenience.
So, if not everybody needs a living trust, what are good indicators of needing a living trust?
This is the main reason I recommend living trusts to clients. By putting the out-of-Texas property in a living trust now, it helps to eliminate the need for any ancillary probate proceedings in another state. In Texas, there is little need to be scared of probate as we have a wonderful Estates Code with excellent laws that make probating most valid properly drafted wills quick and easy, assuming no debt issues or fighting amongst the beneficiaries. In many other states, probate is more expensive (sometimes extraordinarily expensive compared to Texas probate procedures), so the up-front cost of the living trust may make sense.
This is the main category where I view a living trust as a necessity.
It is becoming increasingly more common that banks won't honor power of attorneys for certain transactions, and particularly if the power of attorney is not executed to the bank's liking. This leaves your loved ones in a lurch and possibly having to choose to implement an expensive guardianship. Since the cost of the trust is almost always less expensive than the guardianship, you can view the trust as a guardianship avoidance device. A living trust may avoid this issue because the assets are already in the trust.
This category is increasing in importance to me as banks may refuse to honor validly executed power of attorneys.
Wills always become public record after they are probated. Further, additional documents called Inventory and Appraisements may also become public record after the will is probated. Thus, the “who gets what” may be entirely public record and end up in the news or tabloids.
With a living trust, the trust document is typically not public record. While there are still ways for people to track down ownership, it becomes more difficult. A living trust gives better privacy, but not perfect privacy.
This category may or may not be a necessity depending on your net-worth, and your public profile. It may also be a convenience depending on how much you value keeping your affiars private.
A living trust is harder to contest than a will. But, please don’t interpret this as meaning that a living trust cannot be contested. While contesting a trust is not a will contest, a trust can still be separately contested.
If you are anticipating a contest, a living trust may be both a necessity and a convenience.
If you just really hate probate, a living trust may be able to help you avoid probate altogether. But, it’s my opinion that this benefit of a living trust is sometimes pushed too hard by some professionals as "everybody needs a trust to avoid probate." The truth is that some living trusts will still need a probate along side of them to take care of any assets that were not properly owned by the trust at time of death.
If anything, having the main assets in the living trust can get those main assets into your loved ones’ control sooner than probating a will, even if a probate is also necessary. So, a living trust can avoid probate (this means no court and limited lawyer involvement) for those assets inside the trust, assuming there aren’t any creditor issues, contests, or tax issues.
This category is typically a convenience. But, the convenience and piece of mind that it can give to the surviving spouse may be large depending on your personal situation. They are also particularly good to take title to existing businesses to prevent a "shutdown" between your death and probate.
Since a simple living trust usually has corresponding legal fees similar to a simple probate, some clients may view a living trust as "paying for probate" now, instead of in the future. Another aspect is that you're paying for the trust at today's legal prices, instead of the future's higher prices due to inflation.
Even if you don't fall into the above categories, you may be the kind of person who prefers having the "luxury" package. Even if you don't have a necessity requiring a living trust, it's can be advantageous for your loved ones to have a living trust properly implemented before your death. It can add flexibility to your estate plan and give your attorney and financial advisors more options to accomplish certain tasks.
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