Advantages of a Living Trust-Centered
Estate Plan over a Will-Based Estate Plan

 By Teddy R. McNamara, Attorney at Law on August 8, 2015

There largely exists a misconception about the functions of a Will and that of a Revocable Trust. In many ways the two operate in the same fashion. For instance, both a Trust and a Will serve to transfer the decedent’s assets to those that they have chosen as their beneficiaries after they die. They also both nominate someone to be the Trustee or Executor to pay any taxes, debts and handle the distribution of their assets to beneficiaries after death.

However, there are far more differences between the two than similarities. One major advantage that a Trust offers is the retention of control over finances at incapacity. What this means is that a Successor Trustee can handle your financial affairs without Court interruption or supervision. There is no need for a petition to the Probate Court for a Conservatorship. Think of a common scenario such as the following; one spouse gets dementia and loses capacity to make financial decisions. Next, the spouse with capacity needs to sell the house or refinance to downsize or pay for assisted living expenses. However, the house is titled as joint tenants with right of survivorship (which is how 9 out of 10 spouses hold title to their homes in California) and the spouse who has lost capacity will not be able to sign the documents to sell or refinance. Therefore, in this situation the competent spouse is unable to fully manage their estate and would need to initiate conservatorship proceeding to be able to sell or refinance the house. This proceeding is public, costly and time consuming. Further, this is the last thing a loving and supportive spouse wants to go through while caring for an incapacitated spouse.  

            For a married couple, the other spouse is typically a co-trustee of the Trust, so they can handle the financial affairs of their incapacitated spouse. However, if both spouses are incapacitated, a Successor Trustee can step into their shoes and act for them both. A Trust can also include provisions for the manner in which care for other family members is implemented should you become incapacitated or die.

Trusts also avoid Probate Court at death if funded, whereas a Will does not avoid probate. Probate can last more than 1 year and is very costly. Recently in San Diego the North County Probate Court closed and was consolidated with the downtown Probate Court. As a result the court is flooded with cases and it can takes months before you can get a hearing set.  It does not provide any privacy and protection from prying eyes. Some probates linger on for years until they finally end. Probate is costly because the fees are based on the Gross, not net value of your estate and the fees are set by statute. Expect to pay from 4 to 8 percent of the estate in attorney and personal representative fees.  There are additional fees for filing with the court, publications and appraisals. Further, the attorney can ask for extraordinary fees if the probate becomes complicated. Extraordinary fees are above and beyond the statutory fees and are determined by what the judge considers reasonable and just. Also, the time value of money is a factor to consider because the time it takes to close a probate prevents beneficiaries or heirs from freely investing the assets as they see fit. Many opportunities can be lost during this administrative period. Also, probate files are open to the public, so anyone can look at the files and determine who is inheriting your money. Finally, probates are messy, frustrating and emotional for the loves ones involved. The less planning the decedent has done means more work for the loved one to search through endless records for assets or debts. This time consuming process is stressful and emotionally draining for family members to endure. With a Trust and proper planning, funding and continuity of management, much of these hassles can be mitigated by planning ahead and staying organized.   

A Trust will need to be administered at death, but the expense is typically much less than a probate proceeding. The fees paid to the attorney are not set by statute; rather they are negotiated with the attorney and usually on an hourly rate, although some attorneys do charge based on the percentage of the estate. A trust administration is private and the trust does not need to be filed with the court. There is no legal mandate that you must publish notice of a Trust administration in the newspaper like a probate. Although you could publish notice of a trust administration in the newspaper which would shorten the statute of limitations on creditor claims. Lastly, a Trust administration can be completed in months not years. Although some trust administrations can last a long time.  

Another benefit unique to Trusts is the ability to plan the timing of distributions to children and other beneficiaries. The timing can be based on several factors such as the age of the beneficiary, an incentive program (like going to college) or even a dollar for dollar matching program for beneficiaries that work in a low-paying, but socially rewarding career. These are but a few of the many benefits that Living Trusts have to offer.