The living trust is a topic of substantial
controversy. The controversy began a number of years ago with a book
called "How To Avoid Probate" by Norman Dacey. Since then,
numerous books have been written that offer do-it-yourself revocable
living trusts that are promoted as being able to help you to avoid the
costs and other problems of probate. Some books also claim that a
revocable living trust can help you to save estate taxes. I'm surprised
that none of the books I've seen went so far as to claim that a living
trust could help you to save income taxes because it's technically true
- and misleading.
In addition, seminars on living trusts have become extremely
popular in most larger cities. Most of the seminars are being promoted
by lawyers, insurance agents or financial planners. The headlines
promoting the trusts virtually scream at you about the terrible pitfalls
of probate, which are often exaggerated.
Meanwhile, a number of articles have been critical of the
promotional hype. A headline in Retirement Life (3/93) says,
"Avoiding Probate Is Certainly Desirable, But Beware Of The Income Tax
Implications." The Jan. 18, 1993 issue of Business Week had an
article with the headline "Before You Trust In A Living Trust". An
article in Probate and Property discusses the post death tax
benefits of a will compared to a living trust. A Personal Financial
Planning article (9/93) discusses the "hidden estate planning
problems" of a joint (living) trust.
An extensive article about the living trust appeared in the
August 12, 1996 issue of Medical Economics. Written by Martin A.
Goldberg, J.D., the author argues that for many people the living trust
does not save money or hassles. According to Goldberg, "These highly
touted estate-planning tools are more glitter than gold. Sometimes
they're even counterproductive."
The problems are not so much due to any defects of the
revocable living trust as with the pre-packaged, do-it-yourself books
and manuals that are being peddled as low cost alternatives to the
expense of hiring a qualified lawyer to help you develop an estate
conservation plan that is appropriate for you. (And .... in case you are
wondering if I'm a lawyer, the answer is "No. I'm not.")
What Is A Living Trust ?
There are two ways to create a trust. You can create one while you are
living or you can create one by will, after your death. The first is
called an "inter vivos" (living) trust and the second is called a
testamentary trust. One author has coined the phrase "Loving Trust" to
describe a living trust. Various authors have used their own name
(i.e.,, The "Austin Living Trust") to describe a specific trust that
they drafted.
There are also two types of trusts. A trust can be revocable
or it can be irrevocable. However, since the concept of revocation
usually applies to the person who creates the trust, only a living trust
can be revoked by the creator. (It's technically possible for a
testamentary trust to give the beneficiary the power to revoke the
trust, but it's rarely done.) If a living trust can be revoked,
there is no asset protection from the claims of a creditor. The courts
will simply order the trust grantor to remove assets from the revocable
trust to satisfy any claims of the the creditor.
The type of trust that is commonly used to avoid probate is
a revocable, living trust. In most cases, whenever anyone refers to a
"living" trust, they're also referring to a revocable trust.
