savings

Why You Don't Need a Living Trust

They are costly and often overhyped.

Living trusts are typically marketed as a way to avoid the cost and hassles of probate, the legal process used to determine that a will is valid and that your property is distributed according to your wishes. All too often, though, they're sold to people who don't need them, says Sally Hurme, a project adviser for AARP. An estate plan that includes a trust costs $1,000 to $3,000, versus $300 or less for a simple will. What a living-trust promoter may not tell you:

You don't need a trust to protect assets from probate. You can arrange for most of your valuable assets to go to your heirs outside of probate. A home or other property that's owned jointly with the right of survivorship goes directly to the joint owner when you die. Likewise, pensions, retirement accounts and life insurance policies automatically transfer to the beneficiary.

You can keep bank accounts out of probate by setting up payable-on-death accounts, which give the recipient immediate access to the money. A handful of states allow you to name a beneficiary for your car. And more than a dozen states allow transfer-on-death deeds for real estate, says Mary Randolph, author of The Executor's Guide, by Nolo.

Probate doesn't have to be a nightmare. Many states have streamlined probate for small estates. In Cali­fornia, for example, inheritors of estates valued at up to $150,000, excluding property that passes directly to beneficiaries, can skip probate (see a list of state-probate shortcuts).

And in some cases, the supervision that probate provides is beneficial, Hurme says: "Somebody is looking over what the executor is doing, making sure all the assets are found, all the debts are paid, taxes are paid, and the terms of the will are being honored."

You must transfer property to a trust. For example, if you want your home to be included, you need to record a new deed transferring ownership to the trust. This can be a hassle, but if you overlook this step, the living trust is a "worthless piece of paper," Hurme says.

There may be unforeseen consequences. When you create a trust, you name yourself as trustee so you have control of the assets. Most married people name their spouse as joint or successor trustee. This could create problems if you become incapacitated and your spouse develops, say, dementia. Your family could be forced to have your successor or co-trustee declared incompetent to gain access to your finances. Randolph recommends naming another successor, such as an adult child, as trustee. Finally, don't believe anyone who says a living trust will make it easier to qualify for Medicaid. Assets in a living trust are "countable" for purposes of Medicaid eligibility.

Sometimes a living trust makes sense. For example, if you own out-of-state property, such as a vacation home, putting it in a living trust will save your heirs from probate in that state. And Danielle Mayoras, an elder-law lawyer, recommends living trusts to clients who want to disinherit a child or leave more to one child than the others because trusts are harder to contest than wills.

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