Have you been invited to a seminar to explain estate planning using Trusts instead of a Last Will & Testament? Here are a few things you will hear…
Trusts sidestep inheritance taxes!
With a Trust, everything is ‘wrapped up’ in two weeks time of the date of death. This is because Trusts completely avoid probate!
There are no formalities or required letters to the beneficiaries with Trusts!
(Insert sound of squealing brakes)
I feel like Louis Armstrong. . .”And I say to myself, what a wonderful world.” Except that it is not true.
Let’s look at some truths about trusts…
First, there are different types of trusts. Revocable and irrevocable. Knowing the difference and the characteristics of each is critical to your estate planning.
If you place all of your assets in the traditional revocable trust, everything in that trust belongs to you. If you die with your assets in a trust, all of those assets are included in your taxable estate. The exceptions are things like IRAs. So a regular revocable trust does absolutely nothing to change the inheritance tax that your estate will pay. The Pennsylvania Inheritance Tax Return has a Schedule G that includes, among other things, “non-probate assets.” So it looks like we will have to file an inheritance tax return after all. A revocable trust does not sidestep Pennsylvania inheritance tax.
There are ways to keep a trust away from inheritance tax, but that would be only if you had put your assets in an irrevocable trust and done so in a timely manner prior to the date of death. And assets which are in a revocable trust are no longer your assets. And you cannot call the shots of how those assets are managed or distributed. In short, it is no longer your money.
Now, if you want to be able to reach that money and still put it in a trust, you can. But that will be a revocable trust which is subject to inheritance tax, as described above.
Second, the idea of wrapping up everything within two weeks is pure fantasy. It is often difficult to obtain date of death values for all of the assets within that time frame. And since we are looking at a revocable trust, we are having to file an inheritance tax return. If the house in the trust is being sold, then we should wait until the house sells before we file the inheritance tax return in order to be able to deduct all of the related expenses on the return.
In Pennsylvania, we passed the Uniform Trust Act a number of years ago. This has formalities attached to it which are similar to the formalities of administering an estate. There are requirements that must be met, or the Trustee runs the risk of becoming personally liable, as a fiduciary (who is held to a higher standard) who is to be overseeing the trust’s administration.
Trusts have been peddled as a “one size fits all” cure to probate and estate administration. These Trust Mill Trusts will cost you between $2,500 and $5,000. I know of some costing over $8,000.00 They come in impressive leather bound books with silver or gold embossed letters that say “ESTATE PLANNING DOCUMENTS.” The books are chock-full of pages that look impressive. Sadly, most of it is boilerplate language which may or may not (usually not) even apply to you. But its in there, and it looks great! Often, the leather bound book is the most valuable part of these estate plans.
Estate planning is personal. It takes time. You get one shot at leaving a legacy in your estate plan. You want your plan to reflect who you are, to leave the legacy and message you wish to leave behind. You need a professional who will listen to you and respond to what you want to do.
No two estate plans are alike. Using a thick book of boilerplate language is a ‘one size fits all’ response to estate planning. And most times, you will pay less to an attorney to create all of the protective documents for you (and your spouse) than you would pay for a boilerplate Trust Mill Trust.
If you have already gone down the ‘trust mill’ path, call us. We can help you back to a place where you are leaving the legacy you desire. If you are on the fence, call us. We can explain the place of trusts in estate planning. We use trusts, but not in the way they are panhandled and pressure-sold.
We would be honored to be your estate planning attorney.