Is A Trust Really Worth It?

This is something clients bring up with me contsantly – trusts.

Most clients already have their minds set on a trust. Often times people take advice from their friends, or financial advisors who tell them that a trust is absolutely necessary to have nowadays.

But this is why I tell people not to listen to non lawyers – they aren’t the ones actually probating estates, litigating trusts, keeping up to date on state and federal estate tax laws, navigating the labrinth of Medicaid rules etc etc.

So, don’t take any of advice you get from a non lawyer with a grain of salt.

Here is my opinion of trusts

THE TOP REASONS PEOPLE GET TRUSTS

1. Avoid Probate
2. Privacy
3. Avoid Taxes
4. Protect Assets
   

Lets go through each one.

1. Avoid probate

Trust assets typically don’t have to go through the probate system when you die. This means the trustee, or person you appointed to manage your trust, can distribute the funds upon your death immediately.

So is a trust worth it to avoid probate?

Here are some quick facts:

• The cost of a simple trust starts are ~$2,500 and go up from there
• There are FREE ways to avoid probate without a trust
• Probate really isn’t that bad / time consuming / or expensive
  

The whole “probate-bad” narrative can be solely attributed to a Connecticut financial advisor named Norman Dacey.

In 1965, Dacey self published a book called “How to avoid Probate!” He actually got in trouble for giving out legal advice as a financial advisor.

During that time, Connecticut probate courts had three separate taxes on estates, the gift, estate, and succession (inheritance) taxes. As you can see from the following chart, 1965 was the height of Connecticut estate taxes, meaning when you died you had to pay a tax out of your estate.

So it’s no wonder people became so afraid of probate. Today however, that is not the case. Probate fees are minimal, and besides the creditors claim period that lasts a mandatory 6-month period (in Connecticut), everything else is pretty straight forward… Unless, you have multiple houses or properties…A trust might be worth it.

So really it’s a question of… Do I want to wait 6 months to fully distribute Moms money ? (By the way you can make advance distributions before probate is over too, especially if you know there are no creditors)

Or is waiving the 6-month period with a trust worth the $2,500 – $5,000 that a lawyer is going to charge you?

That’s really the question if your only concern is to avoid probate. If you have a simple estate and a simpe will – house, cash, bank accounts… your probate isn’t going to be a nightmare.

2. Privacy

A will is not private. Although it does not disclose and info like social security, etc… it still remains in the probate court after you die and becomes the public record. It only goes public when you die and put it into probate.

A trust is a private document. I think if this is a big concern for you, then a trust is worth it because it’s a great way to keep your info private.

However, also consider that literally NOBODY is snooping around the probate court trying to find people’s wills. Most people don’t even know wills are public.

3. Avoid Taxes

Unless you are worth over $12.9 million dollars in Connecticut, you don’t pay taxes when you die. And neither do your beneficiaries. Also, they inherit your stocks and your house with a “stepped up” basis, meaning that if you bought your house in 2020 for $1 and now it’s worth $100… typically you’d have to pay taxes on the gain of $99 that it accrued if you sold it. When you die you can pass that gain on to your heirs tax free.

Anyway, only people worth over $12.9 million dollars pay a tax when they die in Connecticut. That’s it. If you’re worth over that much, then trusts save on taxes.

Some lawyers have spread this propoganda that “well, the tax numbers can change at any minute! So might as well pay $10,000 for two trusts that you don’t need in the event that the IRS changes the thresholds!!”

To that I say – 1. There will be plenty of notice if the IRS ever changes that number, 2. since there will be notice… if they ever change the number then get a trust then, why spend so much money on something you don’t need?

4. Protect Assets

Only irrevocable trusts protect your assets 100%. This means you can’t go back on your trust. And they only protect creditors that arise after you create the trust, so it doesn’t cover existing creditors.

If you’re worried about your business or your house or being sued personally, etc.. there are better more efficient ways to protect yourself than putting your assets into an irrevocable trust.

First idea is to get better insurance. Nobody has good insurance nowadays, everyone has the lowest most garbage policies that barely cover anything.

Insurance is the tool used to protect you and your family, beef up your insurance whether its auto, premise liability, etc… You don’t need a trust when you have good insurance.

The liklihood of someone coming after your house after an auto accident would require them to have extraordinary damages, and that your insurance wasn’t enough to cover it.

In sum

I generally don’t recommend trusts unless I see a compelling reason.

They’re also so overpriced now that it’s kind of worth it to just go through probate, have a will, and do it the old fashioned way – nothing fancy.

If you have questions email me

[email protected]