Rethinking Living Trusts

Personally, I tend to think living trusts are oversold. Some attorneys, looking for fees, try to talk all sorts of clients into creating a living trust when the trusts may not be necessary or even appropriate.

The main purpose of a living trust is to avoid probate. Probate is the court proceeding to make sure a person's debts are paid, and then the remaining property distributed to heirs and legatees.

But, it may not always be advisable to avoid probate.

For example, in Virginia, when the only probate asset a person has is real estate, a living trust may not be the right answer. That is because the real estate passes automatically upon filing the will. There will be a probate tax of $1 per every $1000 of value. But, even if you have a $600,000 house, that amounts to $600 in probate tax, as opposed to a few thousand dollars to set up a living trust.

On the other hand, if a person has any appreciable amount of assets other than real estate, a trust may actually make sense and save the estate some money. That is due to the exorbitant filing fees due as the probate process progresses.

Probate starts with the filing of the will and qualification of the executor. There are fees associated with this, as well as the probate tax. But, then, the executor will be required to file an inventory, setting forth the assets of the estate. On an estate worth less than $100,000, the filing fee in Fairfax County for the inventory is $166.

After the inventory, the estate is well advised to request a debts and demands hearing, which involves a newspaper notice. This process can add a cost of about $300.

Then, the executor must file accountings. In Fairfax County,a first accounting of an estate worth between $50,000 and $100,000 will incur a filing fee of $416.

When you add fees for a lawyer and an accountant to all of this, you could easily find that probate will cost over $6,000 even if the assets are worth less than $100,000. Given this analysis, a living trust to avoid probate may make sense.