The other day, I received a call from a friend of mine and he had a couple questions regarding estate planning. The questions dealt with his parents who were in the process of having a living trust completed. My friend is an only child and upon both his parents’ death, he will be the only beneficiary. As he explained to me, his parents’ assets consist of their bank account, a brokerage account at Fidelity and their home. Both his parents receive a pension but that will terminate upon both their deaths. Currently, they have a will but, my friend thinks they were talked into doing a trust. His first question to me was do they need a living trust?
A living trust is not for everyone. The two main reasons why you do a living trust are to reduce or eliminate estate taxes, and the second is to avoid probate. I explained to my friend that in his parents’ situation, there would be no estate tax. Currently, if you add up the value of all their assets, including the home, it’s about $600,000. Therefore, there are no estate taxes. Thus, one of the main reasons for doing a trust does not exist.
The second major reason people do a trust is to avoid the probate process. In the situation at hand, there are easy and certainly less expensive, ways to avoid probate than the trust. Since my friend’s name is already on the home and the checking account, the only issue from a probate standpoint is the Fidelity brokerage account. Once again, there is a much easier and less expensive way to avoid probate on the Fidelity account without having to go through a trust. Since the account is already in joint names, husband and wife, all that my friend has to do is to have his parents add him on as a beneficiary and once again, that account would avoid probate.
My friend’s second question was if they decide to do the trust, who should be the trustee of the trust? The attorney suggested that mom, dad and the attorney all be co-trustees. Upon the death of both mom and dad, the attorney would be the sole trustee. My friend asked if that was appropriate. My answer was, no. My question is why did my friend need a trustee over his money? As far as I’m concerned, mom and dad should have been co-trustees and upon both their deaths, the son should have been the trustee. There are reasons to have a professional trustee; however, it is not the norm. As far as I’m concerned, the first choice in naming trustees should always be someone in the family. That doesn’t necessarily mean that they will have all the knowledge as to how to handle and manage the trust; however, they don’t have to. All they need to do is hire someone who has the expertise. When you name someone as a Trustee, they are in control. I prefer always to keep families in control. After all, if families are in control and they need professional advice, they can hire someone who if necessary, they can fire. On the other hand, if you have a professional trustee it is very difficult and expensive to have them relieved of their duties.
Living trusts can be an excellent estate planning vehicle for many people; however, they are not for everyone. In many situations like the one at hand, where there are no estate tax issues and where the main issue is how to avoid probate, there are other tools and techniques that can be used that are cheaper and just as effective. Once again, my philosophy has always been that the money looks better in your pocket than it does anywhere else.