Will a living trust save time and money when settling an estate?

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Q. I understand most people in New Jersey don’t need a living trust because probate is simple in the state, but can having a living trust save you time or money?
— Planning

A. Thank you for your question.

While probate avoidance is often touted as a reason to have a living trust, generally speaking, many people who have living trusts also have what are called “pour over wills,” said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

“This is because people often have assets that they have not placed into a living trust such as tangible personal property such as furniture and household furnishings, a car, and/or a small bank account,” she said.

Plus, it may be necessary to open an estate because of unclaimed funds held by the state, a tax refund or return of insurance premiums, she said.

“Pour over wills generally provide that the estate assets will `pour into’ the living trust upon the death of the person who created the living trust,” she said.

Living trusts have the advantages of privacy and the elimination of challenges to the estate, Whitenack said. Such trusts can also be used to segregate assets acquired before a marriage and as a vehicle to manage the assets of a person with diminished or lack of capacity.

“While financial institutions can freeze up to half of the assets in an estate until a tax waiver is obtained, tax waivers are not required to transfer legal ownership of trust assets following the death of the person who created the trust and therefore, financial institutions cannot similarly freeze up to half of the assets in a trust for that reason,” she said.

But there can also be disadvantages to creating a living trust.

“The cost of creating a revocable living trust and a pour over will is generally greater than the cost of preparing a will only,” she said. “In addition, there may be costs associated with transferring assets such as real property into a living trust.”

The legal fees incurred in administering an estate may be greater than legal fees incurred in administering a trust after the death of the trust maker, Whitenack said

Furthermore, the time it takes to settle an estate may be longer than the time to distribute trust assets because it may take several weeks to probate a will and obtain a tax waiver, she said.

“However, if the person has relatively few assets that would be subject to probate, the cost of establishing a living trust may be more costly than administering an estate,” she said.

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This story was originally published on Feb. 8, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.