by Julian E. Gray, CELA

By now, if you haven’t been invited to a Living Trust Seminar, you are probably also one of the last few people who has not purchased the “Tae Bo” exercise video. As an estate planning attorney, I regularly draft various legal documents for my clients based upon their goals and needs. These documents range from simple wills all the way up to multigenerational complex trusts, and on occasion, the Living Trust. Let’s emphasize the “needs” portion for purposes of a discussion on Living Trusts.

The Living Trust is a legal estate planning document used to hold assets, the title and control of which will be transferred to a successor Trustee at some predetermined time in the future. The popularity of the Living Trust has grown dramatically over the past decade in Western Pennsylvania as well as across the nation. This is due in large part to slick marketing involving free seminars and what I call the “Fear Factor”. No, I am not saying that we test a client’s tolerances by being submerged in a tank full of snakes or beetles. This is a much more subtle fear, which in my opinion, has permeated numerous communities through persistent targeted marketing efforts. While you might think that the lawyers are out pounding the pavement and causing all this fuss, in actuality, the heightened profile of the Living Trust is attributable to the efforts of what we in the business call “Trust Mills.” Trust Mills are typically national or regional companies which market this product. Sometimes, this product is offered by such companies directly to the public without the assistance of a local (state licensed) attorney. It would be an understatement to say that the Attorney General has frowned upon the latter practice. (If you would like to read more about the prosecution of such cases, please email me and I will provide you with some recent examples.) Before you assume that this article is solely geared towards the persecution of the Living Trust and its promoters, remember that this product can be useful to a client when it fits the client’s needs. Unfortunately, it has been marketed as a “one size fits all” cure for the alleged evils of probate, taxes and the estate administration process in general.

To understand what the Living Trust is meant to cure, we must first understand the perceived problems, or “fear factors” if you will.

1. Taxes: As the old saying goes, “nothing is certain but death and taxes.” When it comes to the latter, the Living Trust is no exception. The two taxes that concern estate planners in Pennsylvania are the Inheritance Tax and the Federal Estate (and Gift) Tax. The Living Trust does not avoid either of these taxes.

2. Probate: There are probably more rumors circulating about the probate process now than there were rumors about one of our former Presidents when Monica Lewinsky was testifying before Congress. Simply put, probate is the process whereby a Will is admitted to the court to appoint a personal representative, who in turn is charged with the duty of carrying out the administration of the decedent’s estate. In most counties in Western Pennsylvania, probate takes about 15 minutes. It is hardly the painful or expensive process that the Trust Mills have touted. For example, the typical probate fee charged by the Allegheny County Register of Wills for the average estate is a couple hundred dollars.

3. Privacy: It seems that a recurring fear factor is that our neighbors are going to run down to the courthouse and check out how much money we had and who we gave it to. Who are these people? Don’t we all have better things to do in a time of mourning than snoop through our neighbor’s estate administration file? I have never had someone ask me how to locate a decedent’s will in the public records for this purpose. It is true that a Living Trust is not usually filed at the Register of Wills office. However, as previously stated, the Living Trust still triggers the Pennsylvania Inheritance Tax. Therefore, a copy of the Living Trust must be submitted to the Department of Revenue after death to verify the tax liability. If submitted through the county’s agent for Inheritance Tax collection, you guessed it – the trust is now open for inspection by the public.

If the three major fear factors that drive the overuse of the Living Trust are not resolved, then why do they continue to fill hotels, churches and fire halls with eager would-be customers willing to hear the pitch? Maybe there is nothing better on TV that night. Maybe the refreshments are good. I’m not quite sure.

However, Pennsylvania’s Inheritance Tax and probate process are very different from other states where the Living Trust actually addresses some of the fear factors. For one thing, Pennsylvania is one of the few states that still imposes the Inheritance Tax. Second, and more importantly, the states in which the Living Trust originated have dramatically higher probate fees. In any event, the details of Inheritance Tax and the probate process are beyond the scope of this article.

One thing is for sure: A Living Trust is not a Will substitute. Every Living Trust must also have a complimenting “pour over” Will to insure the proper funding and intended distribution pursuant to the terms of the Living Trust. Failure to follow through on the related documents and funding of the Living Trust are the most common problems with the mass production of this product by the Trust Mills.

The legal work involved in properly setting up, funding and administering a Living Trust versus the administration of a probate estate is about a wash. The question is whether you, as the client, want to embark on this process before or after death. Unfortunately, many of the Trust Mill plans that I have reviewed contain superfluous documentation.

However, it does come in an impressive package! Finally, many of my clients who engage in Medicaid planning are disappointed to find that they must undo the Living Trust to protect their assets from nursing home “spenddown.” That’s one part of the pitch that never makes it across home plate. So, the next time you are approached to buy into the Living Trust program, take the time to investigate the facts with a competent estate planning attorney. Base your decision on your needs and budget, not the fear factors.

Copyright 2003 Julian E. Gray - Published in Pittsburgh Boomers Magazine, (various editions)

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