Do You Need a Living Trust?

      Have you attended an estate planning seminar or read promotional materials that claim you must have a living trust to avoid estate taxes and probate?  Has a salesperson come to your home with frightening information about probate?  While a living trust is appropriate for some people, the cost of creating, funding and administering a living trust outweighs the benefits for many people.  Do you need a living trust?  Let's look at the facts.

    Can a living trust save estate taxes?  Yes, but no more so than a will.  Most estates will face no death taxation at all.  The current federal estate tax exemption amount is $5,000,000, although it is scheduled to decrease to $1,000,000 on January 1, 2013.  The current Illinois estate tax exemption amount os $3,500,000.  Regardless of the exemption in force at your death, if your estate is taxable, a will can accomplish exactly the same tax savings as a trust, possibly at a much cheaper cost.  In addition, a living trust will not provide any income tax savings.  All income must continue to be reported on your income tax return.

    Can a living trust avoid probate?  Yes, however, a living trust will only avoid probate if all of a person's assets are transferred to the trust or pass by operation of law.  Many times a person will create a living trust and leave one or more assets out of the trust.  In that case, a probate can be necessary in spite of the living trust.

    Do you need to avoid probate?  Probate in Illinois is not an unduly lengthy, difficult or expensive process.  Illinois has adopted a simplified probate process, where the involvement of the court can be very limited.  This is not true is all states.  The probate process in some states can be burdensome, but this is not the case in Illinois.  Although the probate process itself is not burdensome in Illinois, the nature of the estate can cause delay and expense.  For example, if a person dies without a will or a living trust or if the estate is insolvent, probate can be more complicated.

    Non-taxable probate estates generally take one year or less to complete.  There are rare circumstances where families and/or the IRS litigate for an extended period after a death.  Such disputes can cause delays in the administration of either a probate estate or a living trust.  In most circumstances the administration of a living trust is no more time efficient than the administration of a will in probate.  I recently concluded the administration of a living trust that took seven years to complete because of litigation with the IRS and among the beneficiaries.  The administration of some estates and trusts lasts for decades, but it is not because of the probate process.

    Estate administration includes many tasks other than probate, such as preparation and filing of a federal estate tax return and an Illinois inheritance tax return, transfer of assets to beneficiaries, filing claims for life insurance proceeds, etc.  A living trust will not avoid these tasks.

    If you are a resident of Illinois and you die intestate (meaning without a will) or without a living trust, your property does not pass to the state unless you have "no surviving spouse and no known kindred."  Illinois law provides that an intestate estate passes to the decedent's surviving spouse and descendants, or, if none, to the decedent's parents and siblings or nieces and nephews, or, if none, to cousins, etc.  However, although an intestate estate will not pass to the state, it may not pass as the decedent would have wished.  For example, many married couples with children would prefer that the surviving spouse receive the entire estate.  If a husband dies without a will, under Illinois law, his wife will only receive one-half of his probate estate.  His children will receive the other half.

    Can a living trust help you qualify for public assistance benefits?  No.  A living trust will not help you qualify for public assistance benefits, such as nursing home Medicaid benefits.

    Can a living trust avoid the expense of a guardianship?  A living trust can help avoid the expense of a guardianship if you become incapacitated.  However, for many people a durable power of attorney can prevent the need for a guardianship.  A durable power of attorney is simpler and much less expensive than a living trust.

    When should you consider a living trust?  You should consider a living trust if you are concerned about the management of your affairs in the event of your incapacity.  For example, you may have been diagnosed with a progressive illness.  In that case, a living trust can enable the person or corporate trustee of your choice to manage your assets for you when it becomes necessary.

    You should consider a living trust if you own property outside of Illinois.  The probate process is governed by state law.  If you own property in three states, your estate will likely have to be probated in all three states.  A living trust can eliminate the need for probate in multiple states if the living trust is set up correctly and complies with the laws of the states where the property is located.

    If you conclude that a living trust may be right for you, you should deal directly with an attorney who is licensed in Illinois and who has substantial expertise in estate planning.  The laws that apply to trusts vary from state to state.  Forms, kits or computer software programs may not be tailored to the requirements of Illinois law.

    In conclusion, should you have a will?  YES!  Should you have a living trust?  Maybe, but not because of the horrors of probate.  Every person's financial situation and family situation is different.  Estate planning is not a "one size fits all" process.  Your attorney should only make recommendations to you after analyzing the facts of your situation.