The following short questions and answers resulted from a recent presentation I gave on the advantages and disadvantages of living trusts in Colorado, primarily from persons who attended seminars or read articles about trust advantages and nothing else was included so an overall picture was not presented.
Q: If I have a tax problem, must I have a living trust?
A: In Colorado a tax will does operate just as well, if not better than, a tax living trust. Just as a tax trust needs to be put inside a will, we need to create a tax trust inside a living trust. Thus the choice of a will or a living trust is not based on how large an estate is, but cost and if probate is really a problem.
Q: But doesn't a living trust avoid probate?
A: Yes, but in Colorado, so what? You still have to disassemble the trust and many times a probate is still necessary since all assets were not titled in the name of the trust but were in the name of the deceased. The general cost of settling an estate through unsupervised administration is probably going to be less than terminating the trust, especially if the family elects to do so without an attorney.
Q: But when someone dies, nothing else needs to be done with a trust.
A: Wrong – just as the assets must be retitled to the trust, the assets must be transferred out of the trust when the trust ends.
Q: But stock brokerage houses do not honor durable powers of attorney.
A: Never in my practice have I heard of such a thing. If the attorney has done his or her job, the durable power of attorney must be honored. Otherwise, the brokerage house, for example, will be held liable for damages.
Also remember trust authority only applies to assets in the trust, not outside of it. Normally a trustee can not make personal decisions for people who set up the trust, especially if such matters do not involve trust assets. Thus a durable power of attorney is needed, even with a living trust.
Q: I was told my living trust will protect assets from social services and medical and nursing home expenses.
A: In Colorado your revocable trust will stand up even less effectively than a snowman on a Hawaii beach at noon on July 4th.
And if you transfer your assets into an irrevocable trust and you are the beneficiary, the assets can still be taken in Colorado.
Finally, if you transfer assets to a third party and that third party sets up a trust for you using those assets, guess what – the assets have exposure.
Q: But I have real estate in a sister state.
A: Almost all states have a special ancillary proceeding where to transfer title will cost only several hundred dollars.
Trusts are best for some people but certainly not for everyone. The use may be more desirable in some states like Wyoming, but not for every state, such as Colorado. And yes, in Colorado the use of a trust can be much more expensive and complicated than settling the estate with a Will and a probate using unsupervised administration.
Test your attorney asking about the foregoing and have your attorney share with you the Colorado figures for the average cost of settling an estate through court (plus the cost of the Will) vs. settling the estate through a trust (plus the cost of setting up and taking the trust apart). And do not be afraid of getting a second opinion.