Will May be Preferable to “Living Trust”

As a testamentary instrument, the living trust may be attractive for some elderly testators. For younger persons however, a Will is generally preferable. Despite statements to the contrary, a living trust is possessed of no inherent tax benefits. Furthermore, few, if any, tax benefits achieved by using a living trust cannot also be achieved by using a Will. The converse, however, is not always true.

Property disposed of by Will passes into the probate estate. Although property placed in a living trust avoids probate — and thus a Will contest — trust provisions may also be challenged in court either before or after the grantor’s death. Concededly, having begun operating before death, questions concerning the trust instrument, or the competence of the grantor, are likely to have been resolved during the grantor’s life. Still, the mental capacity required to execute a living trust — a legal contract — is higher than that required to execute a Will. Capacity to execute a Will requires only that one know the nature and extent of his property and the “natural objects” of his bounty.

Many tasks necessary in funding a living trust merely accelerate into the grantor’s lifetime tasks that would otherwise await death. Query whether the time and money so expended, perhaps many years before the grantor’s death, is an efficient use of resources. Moreover, the transfer into trust of some assets, notably real estate, is cumbersome and may violate a mortgage agreement.

A living trust does afford the grantor flexibility in disposing of property during life, and also in making use of tax-favored estate planning and gifting techniques. Yet similar flexibility can be achieved by using a durable power of attorney in conjunction with a Will. (A middle course might be to use a durable power of attorney and a “standby” living trust, to be funded by the powerholder in the event of incapacity.) Testamentary trust provisions, such as QTIP or credit shelter trusts, can be inserted with equal facility into a living trust or a Will.

The lack of clear legislative guidance in concerning living trusts in New York should concern those persons who use them. The unwanted application of the “merger” doctrine could result a judicial declaration of no trust. In addition, no explicit rules detail the formalities which must be adhered to in executing a living trust. For example, need a living trust be witnessed? These uncertainties could render a living trust more susceptible to legal challenge.

Finally, many testators may find the task of transferring all assets into trust, as acquired during life, to be burdensome. A “pourover” Will — and probate — may be required to transfer all property not so transferred during life. In sum, a Will, coupled with a durable power of attorney, and often an irrevocable life insurance trust, remain the estate planning and testamentary vehicles of choice for many persons.

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