Ronald Farrington Sharp - Living Trusts for Everyone: Why a Will Is Not the Way to Avoid Probate, Protect Heirs, and Settle Estates

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Published by Allworth Press
An imprint of Allworth Communications, Inc.
10 East 23rd Street, New York, NY 10010
Cover design by Esther Wu
Interior design by Esther Wu
Page composition/typography by Integra Software Services, Pvt., Ltd.,
Pondicherry, India

ISBN-13: 978-1-58115-674-4

eBook ISBN: 978-1-58115-739-0

Library of Congress Cataloging-in-Publication Data:
Sharp, Ronald Farrington.
Living trusts for everyone : why a will is not the way to avoid probate,
protect heirs, and settle estates / by Ronald Farrington Sharp.
p. cm.
Includes index.
ISBN 978-1-58115-674-4
1. Living trustsUnited States.
2. Estate planningUnited States.
I. Title.
KF734.S53 2010
346.73052dc22 2009040383

This book is not intended as legal or tax advice since laws vary from
jurisdiction to jurisdiction and change frequently, so if you have legal
questions about your particular situation you should ask them of an
attorney in your state.

Printed in the United States of America

CONTENTS

CHAPTER ONE:
Trusts and Wills Defined

CHAPTER TWO:
You Must Have a Trust If...

CHAPTER THREE:
A Comparison: Trusts and Wills

CHAPTER FOUR:
Trust Seminars: A Free Meal, But at What Cost?

CHAPTER FIVE:
Watch Out for Attorneys

CHAPTER SIX:.
Trustees

CHAPTER SEVEN:
Making Your Trust Work: Funding

CHAPTER EIGHT:
You Do Not Need a Trust If...

CHAPTER NINE:
The Many Types of Trusts

CHAPTER TEN:
Problems with Trusts

CHAPTER ELEVEN:
Guardians, Powers of Attorney, and More

CHAPTER TWELVE:
Trustee Instructions for Death or Disability

APPENDIX A:
Forms and Form Letters

APPENDIX B:
Short Form: Guide to Trust Funding

APPENDIX C:
Estate and Capital Gains Taxes

Preface

Much has been written about using the living trust to avoid probate. One would assume from the information out there that probate avoidance is the most important value of having a trust. But, for many people, there are far more important and even critical reasons to have a trust rather than a will.

There are four fundamental purposes and advantages of a trust.

The first is asset management. It could be a mistake to give certain beneficiaries a lump sum inheritance. They may be too young to properly manage money on their own, may be mentally incapable of managing it, or may not have enough maturity or good sense to be good money managers. Using a will to leave your assets to your young children may result in money going to someone too young to properly manage it.

Minors can inherit from their parents or others. Unless the inheritance is left to them in a trust, the money is kept for them by their guardian and conservator. Then, when they reach the age of majority (adulthoodusually eighteen), whatever is left of the money they inherit is turned over to them as a lump sum.

Even adult heirs may be incapable of managing money properly. Having their share in trust for them allows someone else to be sure it is properly invested and managed. Those who receive certain governmental benefits, including disabled heirs who need help with medical costs and rely on Medicaid, may be disqualified from receiving those benefits if they inherit too much that is not in the right sort of trust for them.

The second benefit this tax reduction. While the estate tax now hits fewer people than before due to the high threshold, a trust of one kind or another can either eliminate or greatly reduce estate and inheritance taxes. This purpose is considered by many nonexpert attorneys to be the only reason to have a trustthus their oft-given yet erroneous advice: You dont have enough money to need a trust.

The third advantage is probate avoidance, which is a valuable benefit. The big lie put forth by some attorneys and bar associations is that probate is not that expensive and there is no good reason to try to avoid it. The truth is that probate is usually very expensive (because of attorney fees) and is in nearly all cases totally unnecessary if a properly prepared and funded living trust had been prepared. Attorneys who say a trust is not needed are either ignorant of the value of trusts or have a vested interest in seeing probate continue.

The fourth benefit this for those who wish to avoid a court-ordered conservatorship should they become so disabled as to be unable to manage their own affairs. If, for example, a person has dementia, the trust can have provisions that allow a successor trustee (the one who would take control at death) to take over financial management of the trust assets. This helps the person avoid the expense and embarrassment of court supervision.

There is also a grab bag of additional benefits, including privacy (probate is public record; trusts are most often not), low cost (there are no court costs, filing fees, or estate inventory fees on a trust at death), ease of administration, lower likelihood of someone contesting the estate, and elimination of the time delay caused by probate of a will.

I have also included in this volume a set of instructions for the family to follow at death. Most often, attorneys do not provide instructions and the family has no idea what to do when the trustmaker dies. So they go back to the attorney who prepared the trust and end up paying a lot of money to find out what to do. The fact is that a trustee does not need legal services to settle the trust since the things that need to be done are clerical, not legal, in nature. Why pay attorney rates for clerical work? The information in this section is invaluable and not available from most sources.

The information contained herein will benefit both those who do not have a trust as well as those who do. This is not a textbook or a comprehensive treatise on all the many kinds of trusts that can be done for various reasons, nor will you find out how to do your own trust. This is a book for the 95 percent of the population that has done no estate planning, so that they are informed and will not be misled by incorrect information pushed by those with vested interests in seeing the probate process continue.

Introduction

When I was in law school back in 1973, I took an introductory course on trusts and estates. Our class was visited by an old-time lawyer (probably about the age I am right now) who gave us what he considered practical and useful advice in starting out in the practice of law. I will paraphrase his advice as I remember it.

We were in one of the big lecture halls and he stood onstage at the podium, then began to pace much as I imagined he did while talking to a jury.

When you young people get done with law school and pass the bar, most of you will be going into private practice. You will meet a lot of people who want you to do their wills. A lot of them will be your own age. I am going to tell you how to make the most of this opportunity.

Now, you dont make much money on a will. In fact, you dont want to. Consider it a loss leader. The thing to do is do these wills real cheap. Word will get out and you will have a lot of wills to do. How you do it is important. First, when you write it up, be sure to put in that they want you to be the attorney who handles the estateput it right in the will. Get some nice printed-up will paperwork with fancy lettering and your name and address printed on the envelope. Then, make sure that you have a Will File. Keep the original copy of the will and give the client a photocopy and a receipt for the original. Tell them this is normal procedure so the will is kept safe.