Recently, I received a sad letter from a homeowner asking how to solve what should be a simple home sales problem. Her husband has Alzheimer’s disease. After taking care of him at home as long as she could, she became unable to handle him and had to move him into a nursing home.
Although he will receive the best of care, she wrote, it is quite expensive. She now must sell their home to provide cash to pay for his care. Although their residence has plenty of buyers who are willing to pay top dollar, she reports, her husband is on their joint tenancy with right of survivorship title to their home. They, like millions of homeowner couples, thought joint tenancy was the best way to hold title.
Her attorney correctly advised her that to convey title to their jointly owned home, she must now have a court-appointed conservator represent her husband in the home’s sale. Although some states allow a spouse to be appointed conservator of an incapacitated spouse, unfortunately where she lives a court-appointed conservator must be a non-relative. She asked if there was any other way to sell their home without the expense, inconvenience and delay of a court-appointed, non-relative conservator to represent her husband. Regretfully, the answer is no.
A living trust could have helped avoid this problem. Although most people know holding title to a home and other real estate in a revocable living trust is a great way to avoid probate costs and delays, few homeowners realize another major living trust advantage is avoiding situations such as the one described above.
If that lady and her husband, before he became incompetent, put their home into an inter vivos, or among the living, revocable living trust, they could have prevented this problem.
A living trust has three parties: (1) the trustor(s) creates the living trust, (2) the trustee(s) manages the living trust, and (3) the beneficiary receives the assets of the living trust. At the beginning, all three parties are the same.
Husbands and wives can be co-trustors, co-trustees and co-beneficiaries. They can buy and sell their living trust assets, including home, realty investments, personal property such as automobiles and furnishings, bank accounts, and stock brokerage accounts just as before.
However, when a living trust trustor dies or becomes unable to manage affairs, the living trust becomes irrevocable. At that point, the successor or alternate trustee takes over management of the living trust assets. In the situation above, the wife alone could sell the house with no court interference, costs or delays if it was in a revocable living trust. If her husband died, the wife could take over the living trust assets without any probate court costs, delays or interference.
– Why avoid probate court delays and costs? We all know there is no way to avoid dying, but there is a way to avoid probate court costs and delays. I learned that the hard way when my mother died a few years ago.
Thanks to her living trust, most of her assets avoided probate costs and delays–except for her condominium. Her Minnesota attorney incorrectly told her not to put it into her living trust because, he said, she would lose her homestead tax exemption, which is a “big deal” in Minnesota where the property taxes are outrageously high.
After she died, I was referred to an excellent attorney who handled the simple condominium probate. His superb paralegal did most of the work, but this easy probate transfer of title took about a year! Perhaps as a professional courtesy, the attorney kept the cost down to only $1,700 for a condo worth about $100,000. Fortunately, it didn’t have to be sold to pay any estate debts.
Although state laws are supposed to limited probate estate attorney fees and other expenses to between 3 and 5 percent of the estate’s value that must go through probate, extra costs such as accounting, property management and sales costs often deplete estates.
For example, Elvis Presley reportedly left a $10.2 million estate, but his estate administration costs were $7.2 million, leaving only 28 percent of his assets for his heirs. Even frugal John D. Rockefeller’s probate costs consumed 64 percent of his vast estate. Marilyn Monroe left a $1 million estate that was depleted by attorneys and others down to only $101,000, which was distributed to her heirs 18 years after her death. So far, the J. Paul Getty estate has paid out more than $40 million in probate costs to attorneys and others. All these costs and delays could be avoided by use of living trusts.
– Living trust advantages. As already explained, holding your home and other major assets in a living trust avoids probate costs and delays. If you or your co-owner becomes incapacitated, another advantage is the alternate or successor trustee takes over so a court-appointed conservator isn’t needed. But there are other advantages, as well:
– 1.Privacy. Unlike a will, which becomes public knowledge after you die, a living trust is not filed with the probate court because, usually, no probate proceedings are required.
For example, when wealthy Bing Crosby died in 1978, virtually all his real estate assets were in his living trust. The public never learned the extent of his realty and other wealth or who received his assets under his living trust. A few states provide for “registration” of living trusts, but failure to register doesn’t incur a penalty.
– 2.Avoidance of multi-state probate. If you own property in more than one state, a living trust eliminates the need for probate court proceedings in each state.
To illustrate, a few years ago a good friend died without a living trust. She owned a Florida condominium, a Minnesota home and farmland in North Dakota. Expensive probate proceedings were required in all three states to settle her estate.
– 3.Discouragement of litigation. Since living trust assets are usually quietly distributed, unhappy potential heirs have little opportunity for lawsuits. For example, if TV personality Charles Kuralt had held his assets in a living trust, the costly and time-consuming litigation over who should receive his Montana ranch could have been avoided.
– 4. Revocability. Until the living trust trustor dies or becomes incapacitated, the living trust can be amended or revoked. Just as with a will, beneficiaries can be changed, or the entire living trust can be canceled.
– Living trust disadvantages
Living trusts don’t really have any serious disadvantages. However, there will be an up-front cost of approximately $500 to $2,000, depending on the attorney selected and the complexity of the assets and details to be distributed.
But several excellent living trust books and forms are available for do-it-yourselfers. The up-front cost of establishing a living trust, however, is far less than the probate costs and delays that are eliminated.
A few uninformed mortgage lenders and title insurers still won’t allow refinancing of real estate held in a living trust. The simple solution is for the owner to temporarily deed the property out of the living trust, record the refinanced mortgage or deed of trust, and then deed the property back into the living trust.
