Clients often ask whether they need a living trust, instead of a traditional will, in order to avoid probate. The answer to this question will vary, based upon that individual’s state of residence, the types of assets that the person owns, and the assets’ location. Before we discuss the need for a living trust, we need to define (i) “living trust” and (ii) “probate.”
A living trust (also known as a “revocable trust”) is a legal entity which you create by a written agreement which describes how the assets owned by the trust will be distributed during your life and after your death. You may transfer all or some of your assets into the ownership of your living trust. You are usually the initial trustee who controls and manages those assets. You may amend or revoke the living trust, and you can move assets into and out of the trust at any time. Unlike a traditional will, a living trust does not have to be probated in order to distribute your property upon your death.
In Pennsylvania, “probate” of a will is the official recording of your will with the Register of Wills for the county in which you resided at your death. When the will is probated, the executor named in your will is officially appointed and is given the legal authority to administer your estate and to distribute your property according to the terms of your will. The trustee of a living trust (a person you have named to succeed you as trustee after your death) has the same legal authority to administer the trust assets and make distribution according to the terms of your trust, without the need for a probate of the living trust.
If having a living trust, instead of a traditional will, avoids probate, why shouldn’t everyone in Pennsylvania have a living trust?
- (1) Probate in Pennsylvania is a simple and relatively inexpensive process. In most cases, the probate of a will can be accomplished by a brief meeting with a representative of the Register of Wills at the county seat or in your attorney’s office. Probate does require the payment of fees, based on the value of the assets passing under your will. For example, an estate with assets valued at $1 million passing under the will owes probate fees of approximately $1,400. Many people have some assets which do not pass under their will, but instead go directly to a surviving joint owner or a named beneficiary (such as retirement accounts or life insurance). Probate fees are not imposed on those assets.
- Although probate fees are not imposed on assets owned by your living trust, the costs involved in (i) preparing the living trust and the special type of will which accompanies a living trust, and (ii) transferring your assets into the living trust, often exceed the cost of preparing a traditional will and paying probate fees. Moreover, if not all of your assets were transferred into your living trust during your life time, those assets must be transferred at your death by way of a special will which “pours over” those assets into your trust. Probate fees will be imposed on those assets even though they are going into your trust.
- Once a traditional will has been probated, the process of administering your estate is essentially identical whether you have a traditional will or a living trust. In most cases, the time involved in identifying your assets, paying the taxes, and distributing the assets will not differ if you have a traditional will or a living trust.
- (2) Not all states have a probate system which is as simple and inexpensive as Pennsylvania. Even if you are a Pennsylvania resident when you die, if you own real estate in another state, in many cases a second probate of your will in that state will be required to transfer that real estate. In some states, such as Florida, probate requires substantial court involvement, resulting in a process which is both time consuming and expensive. If, instead, your real estate is owned by your living trust, no probate will be required for the transfer of that property to your heirs.
- (3) Some individuals have assets which require day-to-day management, and are concerned that if they become incapacitated, no one will have the legal authority to immediately step in to take over the management. Usually, a general or business power of attorney can address such a situation. However, where a power of attorney is not sufficient, placing those assets in a living trust allows the trustee who succeeds you to be standing by, ready to take over the management of those assets if you become incapacitated.
- (4) Once a will is probated, it becomes a public record available to inspection by any individual who desires to visit the Register of Wills. Many wills do not contain information about the specific assets which you own or their value; but a will does reveal who will receive the assets passing under your will. A living trust is not probated, and it is not usually placed on record with the Register of Wills. However, when real estate is transferred into a living trust, a copy of the trust must be submitted to the Recorder of Deeds along with the deed.
- (5) Don’t your heirs save on death taxes if you have a living trust? No. The death taxes are usually the same whether you have a traditional will or a living trust.
- Like most estate planning issues, there is no “one size fits all” answer to whether you should have a living trust. Many Pennsylvania residents do not need the added expense and complexity of a living trust, but, as described above, there may be circumstances where a living trust is an appropriate substitute for a traditional will.
- If you would like to learn more about a living trust and whether it may be appropriate for you, please contact the estate planning attorneys at Begley, Carlin & Mandio, LLP, and we will be pleased to assist you.
*The author of this article is Lynn Evans, Esq. On a daily basis, Lynn Evans assists men and women throughout Bucks County in achieving peace of mind through practical estate planning. The primary goal of estate planning is to plan for the orderly transfer of a client’s assets during lifetime and upon death, so as to carry out the client’s wishes. Another goal is to minimize state and federal taxes on the transfer of assets. As an estate planner, Ms. Evans assists clients in analyzing their planning goals and identifying strategies to reach those goals. She has extensive experience in preparing many forms of wills, revocable and irrevocable trusts, charitable trusts, powers of attorney, living wills, and other types of planning documents. A significant aspect of her practice also involves elder law and incapacity planning. She can be reached at levans@begleycarlin.com if you have any questions.