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Another option in estate planning

I have written before about the basic estate documents most people should execute: (i) a will to dispose of assets and direct other important matters; (ii) powers of attorney appointing a trusted person to make financial and medical decisions in the event of incapacity; and (iii) a “living will” to direct decisions about end-of-life care (such as how long a person may wish to remain on life support). My clients often ask me if they should use a trust in lieu of a will. In most cases, the answer is “no” for the reasons discussed in this article.

All the same provisions that can be included in a will can alternatively be included in a “revocable trust” (also known as a “living trust.”) This kind of trust has certain advantages over using a will, including the following:

1. Unlike assets disposed of by will, assets placed in the trust will not need to go through a probate procedure upon death of the person creating the trust;



2. The trustee can manage the assets during the lifetime of the person creating the trust (which may be attractive to someone who doesn’t want active involvement in asset management);

3. If the person creating the trust becomes incapacitated, his assets will already be controlled by a trustee (avoiding the potential need for costly “conservatorship” proceedings);



4. The person creating the trust can observe the trustee in action during her lifetime to make sure the trustee is suited to handle the estate upon the person’s death;

5. Unlike a will, which must be filed with the court for public view, a trust is private. This could permit a person to discretely provide for a paramour or illegitimate child or avoid disclosing other details about the estate.

6. There is a general feeling, which may not be true legally, that it is harder for disgruntled heirs to challenge a trust than a will.

Despite these advantages, there are numerous reasons not to use revocable trusts instead of wills. First, probate in Colorado is a relatively simple process that often isn’t worth trying to avoid. A revocable trust may be useful to avoid assets owned in other states going through the probate process in those states, but this is only necessary for people who own assets in other states. Even then, probate could possibly be avoided in other states by holding property in joint tenancy or using beneficiary designations that transfer title to property automatically upon death.

Second, a “poor man’s” way of planning for incapacity is to use powers of attorney forms designating someone to take charge of financial and medical decisions under specific circumstances. While powers of attorney differ from trusts – for example, they do not require the appointed person to take any particular action in contrast to trusts that direct specific action – they can work well if the appointed person is reliable.

Third, revocable trusts are relatively more expensive to establish and operate than simple wills. The advantages must be weighed against these burdens. It is important to note that revocable trusts do not offer significant tax advantages over wills (despite some people who claim to the contrary).

There are many more considerations that play into the decision whether to use a revocable trust. The decision should be made in all cases with the assistance of a knowledgeable attorney. Generally speaking, revocable trusts are not necessary in Colorado unless the client owns property in another state and wishes to avoid probate in that state, for increased privacy, or if needed to plan for incapacity beyond using simple powers of attorney.

Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, commercial law and litigation. He may be reached at (970)468-4953 or Noah@TheKlugLawFirm.com.


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