04/25/2024
When people say they want a "trust", my first thought always goes to my second favorite Princess Bride line: "You keep using that word, I do not think it means what you think it means."
First, a living trust, which is what most people think they want when they use the word "trust", can in fact help your family members avoid probate when you die. However, contrary to popular belief, a living trust does not in any way protect your assets from creditors or serve as any protection from liability. A living trust shares liability with its creator. So the lady who slipped on your sidewalk can sue you and get the living trust assets too; those assets are just as at risk as if they stayed in your personal name.
Second, probate isn't the awful evil thing people portray it to be. In fact, a probate does quite a bit to protect survivors from fraudulent claims. In the probate process, creditors have to present their claims to the court in a timely manner, with proof the claim is legitimate, or they are forever barred. With a trust, there is no such cutoff. Why is this important? The modern world of scammers comb obituary notices and then send false bills to the estate. Most people trying to settle up a living trust will just pay the bills that come in without really checking--because they are stressed, it is a lot of work, and chances are they didn't really know that much about the deceased's day to day affairs. Scammers take advantage of that fact. Plus, with a trust there is no cutoff date, so those bills can trickle in perpetually. Fake claims don't work in probate as the scammers can't present any proof to the court that the claim is valid (and they don't go to the trouble as their whole approach fails once people start asking questions).
Third, a living trust only works if you put ALL of your assets into it. If you forget to properly title the assets in the name of the trust, i.e. your vacation house, your kid's car, or a boat--guess what. You have to go through probate anyway. And generally probating one asset costs just as much as if the estate contained all the assets in the first place.
There are some legitimate reasons to create a living trust, and sometimes there are good reasons to create an irrevocable trust (which is the kind of trust that really does protect assets from liability), but it's important to fully understand the purpose of probate and the protections it provides before deciding how to handle your estate.
If you have estate planning questions, especially if you own your own business or have concerns about liabilities, give us a call.
