Part II: Introduction to the differences between Living Trusts and Testamentary Trust Planning
Following on from Part I of this this article, in Part II we unpack the roles of an Estate Lawyer vs a Trust Lawyer.
Regardless of whether a practitioner uses living or testamentary planning, there is little or no difference in time he or she will spend with a client or in the preparation of the appropriate documentation. If two identical clients respectively sought the services of an Estate lawyer and trust lawyer, they would theoretically be billed the same amounts for their consultations.
Each attorney would have to analyse each client’s situation carefully by gathering complete personal and financial information. Each attorney would enter into a dialogue with the client in order to exchange information and would familiarize the client with the law as it pertains to the client’s situation. Each client would familiarize his or her attorney with personal goals, objectives, beliefs, and biases.
Both attorneys would draft documentation to meet the client’s planning needs and desires. Identical planning would take place but for the choice of legal delivery vehicles. The Estate lawyer would use a will, and the trust practitioner would use a living trust plan. Each would draft ancillary documentation. The living trust lawyer would also create a simple pour-over will as a legal failsafe mechanism.
Each attorney would explain the documents so that the client could judge whether they met all of the agreed upon objectives and would supervise the signing and witnessing of the documents.
Both attorneys would then have to make title changes to their clients’ affairs so that their respective planning would control the appropriate assets. The will-planning/ Estate practitioner would want the title in the client’s name; the living trust practitioner would want it in the name of the client’s trust. This might entail new deeds to property, changes to the title of securities, or title changes to other property. Both practitioners would be sure that all beneficiary designations were changed so that the testamentary or living trust was the named beneficiary.
In either case, the client would generally participate in the title changing process. It is likely that the client’s other advisers, including life insurance agents, financial advisers, and accountants, would offer their assistance to the attorney in rearranging the client assets. As the client, the attorney, and the client’s other professional advisers worked together, the client’s assets would be arranged so that the operative planning document would control them.
What real difference is there in the practices involved in establishing a testamentary trust plan and a living trust plan? The answer is, very little. The living trust plan requires that the property be titled in its name; a testamentary trust requires that ii be titled in the will maker’s name. The differences in the costs of initiating and preparing the respective plans may not be significant. However, funding a living trust is almost always more time consuming than rearranging the title to a will maker’s property. If the client chose not to fund his or her living trust immediately, the costs of living and testamentary trust planning could be theoretically similar.
But why wait to fund the trust? In essence, funding a living trust is Estate planning one’s estate now instead of waiting until death or disability. Some of the reasons given for not funding a trust are that the clients are just not old enough to justify the cost of funding, that funding now would be too much trouble, or that funding should be done only when the client has more assets. Obviously, each of these is an excuse rather than a reason. Since none of us know when we may become disabled or when we are going to die, there is no reason to delay proper planning.
Although creating a living trust without funding is not the best and most responsible estate planning method, unfunded trusts often exist. There are vital primary reasons as to why even an unfunded living trust plan is superior to a testamentary trust plan:
- The Master of the . High Court’s supervision of the post death trust administration is avoided.
- Everything is pooled together under one document, giving the maker much more planning.
- Liquidity is placed in the proper hands so that expense, claims, and taxes can be paid with less complication and
- If the maker becomes incapacitated, the trust is available to be used without the need for a financial curator.
In Part 2 we unpack the relevant differences between Living Trusts and Testamentary Trust Planning.