In addition to the up-front cost of having an attorney prepare your living trust (usually far less than probate costs), unless you elect the do-it-yourself alternative, there are other aspects to consider:
1 – Cost and inconvenience of “funding” your living trust. Preparing the living trust document is relatively simple. You can also hire an attorney who is experienced with living trusts.
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But a living trust without assets is worthless! Some lawyers quickly prepare living trusts, often using computer software programs, and then tell their clients, “Be sure to transfer title to your home and other assets with a deed or title into your living trust. Good bye!”
Unfortunately, many trustors fail to deed their real estate assets from themselves to their living trust. Incidentally, most people name their living trust for themselves. Why? No law requires that. Instead, why not name your living trust for your address, such as “251 Park Road Living Trust.” In case somebody wants to sue you, that will make it more difficult for him or her to learn what real estate you own as trustee for your living trust.
Personal property, such as furniture, valuable antiques and artworks can be transferred into your living trust by a simple bill of sale to the living trust. But automobiles, except valuable classic cars, usually should not be transferred into a living trust because of insurance issues – check with your insurance agent. Stocks, bonds and mutual funds should usually be transferred to the living trust. But bank accounts with “payable on death” provisions probably need not be transferred. Other assets to transfer include copyrights, patents, boats, planes, business assets, certificates of deposit, and mortgage or trust deed investments.
Personal property to be left out of your living trust includes retirement accounts, such as IRA, Keogh and Roth accounts, life insurance (to avoid estate taxes), and stock in a Subchapter S corporation. Real estate transfers into a living trust usually are exempt from transfer fees, property tax reassessments, and homestead rights forfeitures (except creditor protection in Florida – see the recent In Re Bosonetto (2001) 271 B.R. 403 where a Florida bankruptcy court ruled the 89-year-old Chapter 7 bankruptcy debtor’s home was not exempt from creditor claims under Florida homestead law because she held title to the home in her living trust). California has a specific Proposition 13 exemption for transfers into living trusts.
2 – When refinancing living trust real estate, some lenders refuse to allow trustees to sign mortgage documents. When refinancing living trust property, some mortgage lenders require title to be momentarily taken out of the living trust so the borrower can sign the mortgage papers before transferring title back into the living trust.
3 – A living trust trustor still needs a “pour-over” or “back up” written will. Just in case any assets were left out of your living trust, such as your automobile(s), you need a “pour-over” or “back-up” will. Assets subject to such a will can usually pass, after your death, via a “simplified probate proceeding” for small estates in your state. These probate-exempt estates range from as little as $5,000 in some states, up to $100,000 in California, $140,000 in Oregon, and $150,000 in Wyoming.
4 – The Florida Homestead Problem. The Florida constitution provides an unlimited homestead exemption for any “natural person” who claims homestead status for their Florida residence. That’s why so many wealthy persons move to Florida and buy large homes to protect their assets from creditors. Could that be why O.J. Simpson moved to Florida after the multimillion-dollar judgments against him in California?
Another Florida living trust problem is some Florida county recorders won’t accept deeds of homestead property to a living trust unless it is clearly indicated to be a revocable trust. Before transferring your Florida homestead into your living trust, consultation with an experienced Florida attorney who specializes in living trusts is advised.
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