Living Trusts and Probate

“Living Trust” is the promotional name given to what lawyers would technically refer to as a revocable inter-vivos trust.  An inter-vivos trust is a trust you create during your lifetime. 

There are many kinds of inter-vivos trust.  The Living Trust is a inter-vivos trust created mainly for the purpose of having the assets you transfer to the trust avoid probate at your death.  The person setting up the trust can revoke (cancel) the trust at any time and usually names himself or herself as the Trustee (the person is charge of managing the assets owned by the trust).

You can’t take it with you, so the law has to provide methods for the things you own to pass to others after your death.  Probate is one method, the Living Trust is another.   

After you die the things that you own can pass to someone else based on ownership arrangements (e.g. joint ownership with right of survivorship) or contracts or beneficiary arrangements (e.g. assets which are payable at your death to a beneficiary) you created during your lifetime.  Assets that are not distributed by ownership or contractual arrangements will be distributed according to your Will.  If you have no Will, the state has a set of laws (the “intestate laws”) that say who gets what. 

What is Probate?

Probate is the process by which the person in charge of your estate (usually the Executor you name in your Will) gets formally authorized to act on your behalf to do what needs to be done after your death: for example, collect what you owned and what is owed to you, pay your debts and taxes, determine who gets what is left over after debts and taxes are paid, and distribute the right things to you beneficiaries in conformity with the instructions you set forth in your Will. 

But the Executor is authorized to take control only of your “probate assets” not the assets that pass outside of probate.  (Non-probate assets pass according to the separate ownership or contract arrangements the deceased had created).   

To get authorized to act on behalf of the decedent’s probate estate, the Executor takes the Will and a death certificate to the Register of Wills and files them.  If everything is in order, the Register of Wills gives the Executor documents (“Short Certificates”) that show that the Executor is authorized to act. The Register of Wills charges a fee for probate – in Pennsylvania it is rarely more than a few hundred dollars. 

Probate Rules Vary by State

The rules regarding probate vary from state to state.  In some states, like Pennsylvania, probate is a relatively simple and inexpensive process.  It is rare that a judge ever gets involved.  The probate laws are well established so that most potential disputes over probate assets can be resolved by reference to the Will and the law and cases decided in past years.  But a judge is available to resolve disputes if they do come up.   

At the end of his/her work, the Executor can file an account of the Executor’s actions and get Court approval and a release from further liabilities.  But more often in Pennsylvania, probate estates are settled simply by having the beneficiaries just sign an agreement saying that they are all satisfied with what the Executor did. 

In other states the probate rules are much more complicated and restrictive, and probate can result in added expense and delay.   

Unfortunately, articles written on the subject of probate in national publications often fail to recognize that probate rules vary greatly from state to state.  Thus an article written by a financial writer in Los Angeles may be based on the law in California and leave the reader with the incorrect implication that laws in other states are similar.  But probate laws are not national.  They are local.    

Living Trusts can make sense for some people in some situations

There can be both advantages and disadvantages to having a living trust as part of your estate plan. Among the advantages, living trusts can be created to:

-       Provide for effective management of some of your assets in the event of your incapacity;

-       Provide for professional management of your investments; this can be especially valuable for people who are aging, or who are inexperienced in managing financial matters;

-       Provide for the protection of same-sex and other non-traditional couples;

-       Limit the potential for a will contest;

-       Consolidate the management of properties located in more than one state.

Notice that I didn’t mention “avoiding probate” as one of the advantages of a living trust. In Pennsylvania, probate fees are low and usually less than the cost of setting up a living trust. And after your death, the procedures are pretty much the same whether your estate is based on the probate of a will or the administration of a living trust. In some states, avoiding probate may be important; in Pennsylvania, not so much.    

On the other hand, living trusts may be unnecessary, confusing, expensive to set up, and complicated to maintain. Other legal tools may make much more sense for you, depending on your situation. 

For a married couple with a modest net worth who want everything to go to the surviving, owning property jointly may be a much better alternative. And a financial power of attorney may be a more appropriate tool for most people to use to plan for possible incapacity.

Living Trusts Scams

For many years living trusts packages have been marketed to seniors by non-lawyers. The sales take place at “consumer seminars” and in homes on a wide spread basis throughout Pennsylvania.   

The non-lawyer marketers of living trusts, preying on elder consumers fears of lawyers, courts, nursing home costs, taxes, and death, sell standard living trust and related documents for more than your local lawyer would charge you for a customized plan. And the Living Trust is often used as a lead in to selling all sorts of other high cost and inappropriate investments to seniors.    

Often these scammers imply that they are connected in some way to some respected national organization like AARP. (I heard this misrepresentation with my own ears in a Williamsport seminar put on by an out of state Living Trust company). 

Promoters discourage their seminar attendees from getting independent legal advice. Attendees are told that their local lawyer will try to talk them out of the buying the promoters package and that you can’t trust your lawyer because the lawyer just wants to line his own pockets with big probate fees. 

The truth is that these marketing outfits don’t want you to consult with a lawyer because they don’t want you to know the truth. People who know the truth about probate and living trusts won’t buy what the promoter is selling.   

Don’t buy the promoters hogwash. Your best protection is to talk with a local lawyer before you throw your money away.  Be informed. Don’t get scammed. Some estate planning lawyers, like my firm, Marshall, Parker and Weber, offer a free initial consultation for new clients. Take advantage of that freebie to get the information you need to understand all of your options before you spend your money. 

More Information

Beware of Living Trust Scams (Pennsylvania Attorney General)

The Truth about Probate and Living Trusts (Allegheny County Bar Association)

About Jeffrey Marshall

Jeff Marshall is founder of the law firm Marshall, Parker and Weber. He is past President of the Pennsylvania Association of Elder Law Attorneys. Jeff is listed in "Best Lawyers in America" and as a "Super Lawyer" in Elder Law. He was recently named 2014 "Lawyer of the Year" in Elder Law for the Central PA region by US News Best Lawyers® . He is author/editor of the award winning book "Elder Law in Pennsylvania" published by PBI Press. View all posts by Jeffrey Marshall →