San Antonio Express-News
October 31, 2006

Size of Estate not Biggest Issue
when pondering a Trust

copyright 2006, Paul Premack

Dear Mr. Premack: I read your column about living trusts on October 17. Is there a threshold in the size of the estate ($ amount) below which a living trust in not necessary to control or avoid tax liabilities and court costs/attorney fees. You mentioned, for example, the $675,000 exemption. Are there reasons to establish a living trust even if your estate is worth less than $500,000? – PM

The size of your estate does not matter as much as deciding if a living trust can fulfill your goals in an economical way. A living trust is often created with three goals in mind: 1) managing your assets during your lifetime and during disability, 2) avoiding probate, and 3) controlling the distribution of assets to your heirs.

Those goals can also be accomplished in a less centralized way. For instance, you can manage your assets using a durable power of attorney. You might avoid probate using rights of survivorship. You might control distribution of your assets using a Will.

I’ve handled large estates (above $1 million) for which a trust made no sense, and handled modest estates (below $150,000) for which a trust was very appropriate. The question is not “how much must I have before a trust makes sense?”. Rather, the question is “will a trust be an effective and efficient way to meet my goals?” The cost of a living trust can vary, depending on which attorney you hire and how complex the trust must be to convey your instructions.

Think about three married couples. “Couple A” owns their home, savings and investments. They want everything to pass to the surviving spouse, and if they both die they want everything to go to their three adult children. The assets are valued at $800,000. They may be well served with durable powers of attorney and with Wills. Probate may be necessary upon death, but the procedure is streamlined because their accounts are set up with survivorship rights and their Wills are properly structured.

“Couple B” also owns their home, savings and investments. They have the same goals and same asset values. But one of their adult children is disabled and receiving assistance from Supplemental Security Income. To preserve those benefits they must either disinherit that disabled child or must use a unique legal tool called a “special needs trust”. For them, a living trust may become the preferred legal tool.

“Couple C” has all the same facts, three healthy adult children, but one of the investments is a parcel of land in Arkansas. They could rely on Wills to pass the assets, but would likely face probates in both Texas and in Arkansas. A living trust would be a definite benefit for them to avoid multiple probates.

Anyone who suspects a living trust may be a useful tool should have a personal consultation with an estate planning or elder law attorney. Avoid any firm whose sole business is preparing trusts; they may lack motive to examine your legal alternatives to a trust. You need unbiased advice. Also avoid non-attorneys who offer to prepare trusts; they are not properly trained nor are they licensed to give legal counsel. You need quality advice.

I did mention the old $675,000 estate tax exemption in my earlier column, and also said that the exemption has currently reached $2 million. Avoiding estate taxes does not become a factor in choosing a living trust unless your estate exceeds $2 million. The exemption will increase to $3.5 million before the Tax Act lapses in 2011, when it will slide back to $1 million. Congress may, but so far has not, change the tax law.