Areas of Practice » Estate Planning

What is a Living Trust?

A Living Trust is a legal document that becomes a holding vehicle for what you own.

What are the advantages?

1. COST
One advantage of a Living Trust is the avoidance of Probate before and after death, which is very costly and time consuming. Probate is the legal process through which a court makes sure that after you die, your debts are paid and your property is distributed according to your will. That process will cost at least 1 to 2 percent of your possessions. Depending on how complicated your affairs are, the cost could be 6 percent or even higher.

In Tennessee, the Probate Court sets maximum costs. When setting attorney fees, the Court considers the following guidelines: If the decedent's gross estate (including real estate to the extent that services were rendered in connection with the real estate) plus any income earned during the administration of the estate is under $30,000, a fee of $1,500 shall be considered reasonable.  Estates totaling over $30,000, the fee may be graduated as determined by the following guidelines:

Value of Estate           Fee
First $100,000            3% to 5%
Next $900,000            2% to 4%
Over $1,000,000        1% to 3%

The cost of a Living Trust is generally less expensive. Costs that may be included are the amount of tax planning involved, assets involved, the transferring of your assets to and putting them in the name of the trust. With bank accounts, stock bond or mutual fund ownership, and some other assets, there may be little or no costs. With real estate, you will have to pay for preparing new deeds and funding the transfer tax. If someone is hired to manage the assets in your trust, this will add to the costs. Trust administration generally costs about 1 percent of your assets annually. However, if you or your wife are the trustee of your trust, you may manage the assets in the trust yourself and it will cost nothing.
A simple will cost approximately $150 and with the same tax planning as involved in a living trust, the cost of a will would be approximately $750 to $1,000. Because of the set up costs, people with small estates, including little more than a home, do not need living trusts.

2. SPEED
Speed is an advantage of living trusts over Probate. Under Tennessee law, the period for estates to remain open is a minimum of four months, mostly so that creditors have enough time to file claims. In Shelby County, estates remain open an average of one to two years. Trust assets can be passed on quickly. If an estate in a living trust is sizeable and the trust owes taxes, a trustee cannot pass out the assets before getting clearance from the State Department of Revenue and the IRS. This would slow things down, but with a properly written will, you can authorize distribution to be made during the administration of the estate and structure the assets to pass without delays through life insurance or joint accounts.

3. CIRCUMSTANCES
The most important time to avoid probate is during your lifetime when you become disabled. When this occurs the control of your family shifts to the court system. If you transfer your assets to a trust and become mentally or physically disabled, you do not have to get an attorney or have a court involved, post a fidelity bond, absorb court costs and have a conservatorship set up, which would mean having two attorneys, one for you and one for your family (if you were in probate). Instead of weeks to make arrangements, the trustee can be changed in a matter of hours and the trustee can continue to carry out the plans and wishes of the person who set it up.

If you own in more than one state, especially if it is rental property, trust advantages are huge. That is because your will must go through probate in each state you own property.
Trusts are also a good vehicle for providing for your children of your first marriage if you wed for a second time, or to keep part of your inheritance from some family members.

4. PRIVACY
Probate court records are public. Trust documents are not.
To contact Fullen & Townsend Attorneys about this area of practice, please send an email to: trusts@tommylfullen.com.