I recently read an article from a financial planner arguing that one of the three best reasons for estate planning is to avoid probate.  The writer complained of the cost, which he said was 6% of the gross estate.  He recommended putting all of your non-retirement assets in trust (a “living trust”) so they would pass to your beneficiaries outside probate on your death.

I am a lawyer and I do probate work.  I also create the trusts that the writer favors. Here’s my take on the issue.

With proper planning there is usually no estate to probate on the death of the first spouse. Most assets – house, cars, bank accounts, etc. – pass to the survivor directly without probate.  On the death of the second spouse the remaining assets are distributed to their children and grandchildren.  Probate administration is how that happens.  It is not lengthy or expensive (more on that below), and is an efficient way to handle the estate with the assurance of court review if necessary.

In large part, a living trust is nothing more that probating your estate before your death.  You need a lawyer to create the trust, transfer your assets to the trustee, then insure proper distribution on the second death.  That sure sounds a lot like probate administration, except you’ve done it (and paid for it!) before you needed it.  And the trust must keep separate accounting records and may be required to file separate tax returns.  I seldom see a family situation that warrants a living trust.  It can be a good idea if an individual or couple is elderly and a separate trustee is needed to attend to their financial affairs, but you can often accomplish that with a power of attorney.

As to cost, in this jurisdiction attorneys used to charge 5% of the estate as a fee, but no longer do.  In my experience, depending of course on the size and complexity of the estate, attorney’s fees and court costs usually run about 2 ½ % of the estate, billed at a traditional hourly rate. That would likely be the same amount you would pay for the living trust, and the total cost may be even less, especially over time.

So, while I draft trusts every day and use living trusts where appropriate, I do not agree with the popular thought that a living trust is better than probate. Of course each family is unique and circumstances vary, which is why you should plan carefully, and seek the advice of an experienced attorney.

And don’t take legal advice from a magazine article.

In case you’re wondering, the other two reasons given for estate planning were tax avoidance and making sure your assets go where you want them to go.  Both are excellent reasons for estate planning.