Consumer Alerts

Living Trusts:  Magic or Myth?

You may have heard advertisements encouraging you to set up a "living trust". A living trust is a revocable trust where the person setting up the trust is initially named the trustee, and retains the right to the property and the income from the property for life. Many untrue claims are made about the benefits of living trusts. The following are typical claims:

1. Reduce or avoid death taxes   No death taxes are reduced or avoided. In some cases a living trust may inadvertently cause an increase in income taxes.
2. Avoid probate.    Probate is very simple in Pennsylvania. Usually a will must be probated at death even where there is a living trust. Estate administration is essentially the same whether one uses a living trust or just a will.
3. Retain control of your assets.    If you retain ownership of your assets, you will of course retain control. A better alternative is to sign a Power of Attorney appointing someone you trust to act as your agent. In case of mental disability that person can then manage your affairs. A Power of Attorney is far cheaper and less complex than a living trust.
4. Prevent guardianship   A Power of Attorney will enable a trusted person to act on your behalf. in case of incompetency. 
5. Allow assets to be distributed to the family immediately after death.  Assets may be quickly distributed by an executor under a will. Whether a living trust or a will is used, adequate reserves must still be retained to pay bills and death taxes.
6. Protect assets from the cost of long term care or creditors.   No protection of assets is achieved by a living trust.
7. Privacy.   Although a living trust will not be probated, the decedent's estate is required to file an inheritance tax return which is a public record. It discloses the deceased's taxable assets and the who received them.
8. Save legal fees.  Substantial fees are being charged (often by people and organizations not licensed to practice law) to establish living trusts. A Power of Attorney and Will can be prepared by your attorney for a reasonable fee. At death there is virtually no difference in the attorney's fees to be charged, whether or not a living trust has been used.