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Advantages of the Living Trust
MY PREVIOUS article on estate tax discussed certain tax advantages of a living trust. The purpose of this article is to present three additional advantages of the living trust unrelated to estate tax considerations
First, unlike a will, the Living Trust takes effect during the lifetime of the grantor. The grantor is the legal name for the person in whose name the trust is created and whose assets fund the trust. Accordingly, when the grantor dies, there is absolutely no need to apply to a court for an order of probate as would be the case with a last will and testament. This results in a substantial saving of time, bother and money for the heirs (who in the case of a Living Trust are referred to as “beneficiaries”).
Even uncontested probate proceedings require a significant amount of time and expense to initiate and complete. First, it is necessary to obtain all the necessary documentation such as a certified death certificate, the original of the last will and testament, and financial and/or real estate extracts proving the existence of the estate’s assets. Then the documentation must be submitted in the proper manner to the court having jurisdiction over the estate. Fees to the court and possibly to an attorney must be paid out of pocket in order to initiate the proceeding. Time is required until the court actually deals with the file especially in courts that suffer heavy caseloads and backlogs. Not so with the Living Trust. When the grantor dies, the Living Trust continues to function precisely the way it did during the lifetime of the grantor. Normally only a death certificate is required in order for the trust’s beneficiaries to begin to receive their entitlements.
An even more significant advantage for the Living Trust comes into play when as a result of family frictions or otherwise, there is a reasonable basis to fear that a last will and testament is going to be contested in court. This is a nightmare scenario resulting in the estate being tied up in years of bitterly contested and very costly litigation. With the Living Trust, such a scenario is basically a nonstarter. Unlike the case with a will, there is no mandatory court procedure that a trouble-making third party can conveniently enter into thereby holding the heirs to ransom.
With a trust, the third party would have to initiate the litigation rather than simply intervene in an ongoing proceeding. The grounds for contesting a Living Trust are extremely narrow and circumscribed. That acts as a potent deterrent to malicious litigation. Moreover, an attorney’s services are invariably required to launch a credible attack on a trust. In most jurisdictions, the rules governing legal fees rule out the fee being a contingency fee (an agreed upon percentage of the litigant’s share in the event of success). A practical matter, the likelihood of an experienced attorney taking on such a matter on a contingency is next to nil. Accordingly, the malicious litigant will have to go substantially out of pocket to try and contest the trust with very little chance of success.
Third, for those of you who wish to safeguard family privacy, you should know that the assets of an estate dealt with via a trust do not become a matter of public record. As no court procedure needs to be invoked in order for the trust to be activated, your business remains completely your own.
To sum up, you do not need to be a wealthy individual in order for a trust to be an appropriate way of dealing with your estate. Considerations of time, cost, privacy and deterring would be trouble makers make the trust an extremely attractive alternative to a last will and testament.
Frank E. Kahn is an attorney at law and advocate and member of the bar of the State of Israel and of the District of Columbia in The United States. He is also a member of STEP, the worldwide society of trust and estate practitioners.