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To Trust or Not to Trust? That is the Question

By Avery Cooper

In our last Newsletter we mentioned that this would address the question, when is it best to have a Trust and when is it not best to have a Trust? Too often, people either fail to have a Trust when a Trust is needed or on the other hand, pay for a Trust when a Trust is not needed.

Of necessity, this article will cover only general circumstances regarding this issue. We strongly suggest a consultation with one of our attorneys so that you can find out what would be best for your particular circumstances.

Our analysis must of necessity begin with a discussion of a general benefits of a Trust. Remember that generally speaking, Trusts are utilized for specific purposes. A Trust is not always best for a particular set of circumstances.

The most common benefit and use for a Trust is to avoid having to probate an estate. Aside from the avoiding legal fees and related expenses that would otherwise be incurred in having to probate an estate, there is also the added advantages of preserving privacy since your estate will not be subject to the (public) Court system. Speed is also often an advantage when administering a living trust. For example, whereas a probate must of necessity take at least six months or more before it can be finalized, a Trust can be administered and completed in almost half of that time.

As mentioned above, a second advantage in having your estate administered as a Trust is to save significantly in legal fees. Three years ago the legislature greatly increased the statutory fee payable to attorneys as fees for probating estates. The cost of the preparation and administration of a Living Trust is significantly less than the cost of probating an estate.

Lastly, for married couples, a Trust can provide an appropriate mechanism to minimize estate taxes. It should specifically be noted here that recently, that the tax exemption level effective year 2002 was increased substantially from its prior level of $600,000. For people dying in the calendar year 2005, the tax exemption is 1.5 million dollars. This will increase to two million dollars and remain that way for years 2006, 2007 and 2008. In year 2009 the level will increase to 3.5 million dollars! However, this entire exemption "scheme" is scheduled to be repealed in year 2010 and no doubt will be a subject of much discussion during the next few years within congress. There is great uncertainty as to what will happen after year 2009.

Having stated all of the foregoing, it is not all "wine and roses" for Trust makers. In certain circumstances, a Trust can actually be a detriment. There are clear and not so clear reasons for this statement.

For those of you with smaller estates, the cost benefit analysis of administering the estate through a Probate rather than a Trust begins to blend. After taking into account the cost of a Trust, a small estate might be better served by simply having it probated if analyzed from a "which costs more" point of view.

Moreover, for those of you who do not wish to be burdened with the bookkeeping and restrictions of keeping property in the name of the Trust again, a simple Will and Probate might be a better plan for you.

For those of you who anticipate potential creditor's claims and/or contests, again, a simple Will in the Court system might be better.

And, for those of you leaving property which is complex and which will require the intervention of counsel, and if the Trustee named is one who is prone not to follow rules or it is suspected that perhaps he or she will not consult an attorney, having the estate administered through the Court system is one way of ensuring that your final wishes are carried out.

These are some of the basic reasons as to why one might or might not wish to have a Living Trust.

Next issue: What is best to do about bequests to minor children