Although probate avoidance is often thought of as a reason to have a living trust, many people also have what are known as “pour-over wills.”

Why? Individuals frequently have assets that they have not placed into a living trust, such as tangible personal property like furniture, household furnishings, a car, or a small bank account. Pour-over wills typically are written so the estate assets will pour over or pour into the living trust at the death of the person who created the trust.

Living trusts have the benefit of privacy and elimination challenges to the estate. It can also be used to separate assets acquired before a marriage or manage the assets of a person with diminished or lack of capacity, such as a person suffering from dementia.

It’s important to note that financial institutions can freeze up to 50% of the assets in an estate until a tax waiver is obtained. However, tax waivers aren’t required to transfer legal ownership of trust assets after the death of the person who created the trust. Therefore, financial institutions can’t similarly freeze up to half of the assets in a trust for that reason.

However, there can also be a few disadvantages to creating a living trust. The cost of creating a revocable living trust and a pour-over will is usually a bit more than the cost of preparing just a will. There may also be expenses involved with transferring assets, such as real property, into a living trust.

It’s also important to note that the legal fees incurred in administering a probate estate may be more than legal fees incurred in administering a trust after the death of the trust maker. The typical cost of probate is about 5% of the value of the estate while trust administration is about 1%.

Moreover, the time it takes to settle an estate may be longer than what it takes to distribute trust assets. Probate can take months or even years, while trust administration can be done as fast or as slow as you want.

However, if the individual has relatively few assets that would be subject to probate, the cost of establishing a living trust may be more costly than administering an estate.

Speak with an experienced estate planning attorney about whether a revocable living trust makes sense for your unique circumstances.

Reference: nj.com (Feb. 8, 2021) “Will a living trust save time and money when settling an estate?”