As a Montgomery County, PA estate planning attorney, I have found that I regularly come across articles, websites and other media promoting the benefits of establishing a PA Revocable Living Trust (or Living Trust) and urging people of all ages, income levels and geographical areas to create one. I would like to dispel some common myths about Revocable Living Trusts and to discuss situations when a Revocable Living Trust is recommended as part of a Pennsylvania estate plan.
Introduction to Revocable Living Trusts
A revocable living trust is a relatively simple trust that a person (the “Grantor” or “Settlor”) establishes during his or her lifetime. The Grantor retains the right to use and control the trust assets and the trust may be altered or terminated during his or her lifetime. When the Grantor dies, the trust becomes irrevocable and the assets are distributed to beneficiaries pursuant to the trust instrument. Essentially, upon the Grantor’s death, the trust instrument functions as a Will.
The most common assertions made in favor of the revocable trust as a Will substitute that I have seen are that the living trust will save money on taxes, avoid cost and delays of probate and ensure a greater degree of privacy than probating a Will in Montgomery County, PA.
The claim that a revocable living trust will save money on taxes is simply a myth. There are no estate or inheritance tax savings to be had by implementing a revocable trust, unless the trust is created using tax savings techniques, which can also be incorporated into a Will.
Probate is the general term for the court-supervised process by which a decedent’s last will and testament is proven valid or invalid. People like the idea of avoiding probate because they assume or have heard that probate is a difficult, drawn out and costly process. Revocable Trusts do avoid probate, but the probate process in Pennsylvania is not as costly or difficult as one might think.
In Pennsylvania, probate fees are generally reasonable, unlike some states like Florida that have probate fees in the neighborhood of 2% to 6% of the Estate. Moreover, revocable trusts can involve probate fees anyway because it is frequently necessary to have a “Pour-over” Will for assets not in the trust, subjecting the estate to probate fees. Further, there are a separate set of costs to be incurred with a revocable trust that may set off the time and expense associated with probate. These costs include the cost of preparing the trust agreement and related documents, such as a pour-over Will and the costs of transferring property into the trust. Many people assume that transferring assets to the trust is merely a formality accomplished by limited attorney paperwork. On the contrary, there are elaborate protocols and procedures that one must follow in order to successfully and legally transfer assets such as real estate and partnership interests. Legal fees after the death of the Grantor, for the most part, would be expected to be about the same as compared to someone with a Will, provided that you retain a probate lawyer who is compensated based upon professional services rendered rather than a percentage of the probate estate.
The probate process is not as difficult as some may suggest. An experienced PA probate lawyer is familiar with the necessary procedures to follow, authorities to contact and timelines to abide by during probate, and should be able to administer the estate expeditiously and efficiently.
As far as limiting delays, it is important to understand that for both trustees and executors (in the case of a Last Will and Testament), asset distributions are generally delayed until the assets have been valued, the appropriate federal and state taxes have been paid and the appropriate releases have been secured.
Although a revocable trust does not have to be filed for probate like a traditional Will and has privacy advantages, its privacy may be compromised by the requirement of banks and brokerage firms that it be filed as an attachment to the Pennsylvania Inheritance Tax Return" target="_blank">Pennsylvania Inheritance Tax Return, which is filed at the local Courthouse and is a public record.
When to Use a Revocable Living Trust
There are certainly situations and circumstances in which I would recommend a revocable living trust as the best document to be implemented in a Pennsylvania estate plan. For example, if a client owns real estate in several different states, a revocable trust could effectively be used to avoid the necessity of a probate filing in each of those states. A revocable trust may be an excellent tool for the management of the affairs of an elderly person or someone otherwise unable or unwilling to manage his or her property, although a similar result can usually be achieved through the use of a Durable General Power of Attorney, a document appointing another individual to manage your affairs.
In summary, the purported advantages of a revocable living trust over more traditional instruments as part of a Pennsylvania estate plan are largely exaggerated. While a revocable trust may be beneficial in particular situations, the decision to use a Will or a revocable trust must be based on a client’s specific circumstances. Clients’ needs should always be evaluated on a case-by-case basis to ensure that their estate plan is tailored to meet those needs. In this regard, please feel free to contact us to discuss these issues more closely.