This is the sixth in a series of posts on whether it makes sense to create a revocable living trust or not. You can read previous posts here (health and age), here (family dynamics), here (privacy and estate size), here (ownership of real estate) and here (age and time). This is the second post on when it might not make sense to create a revocable living trust or at least postpone it. Many of these factors are the polar opposite of the reasons to create a trust.
The complexity with which a person owns assets is another factor in whether to create a revocable living trust. Complexity can be divided into two aspects. The first aspect deals with what type of assets are owned. For example, if a single person only has a basic financial portfolio of accounts like a checking account, a savings account, 401(k)/IRA account, or other types of Paid-on-Death (“POD”) account then transferring those assets into a trust makes less sense. As I described in my January 2010 Newsletter, POD accounts are not controlled by a person’s will or probate court order but by the designation of a beneficiary. POD accounts would be distributed outside of probate, and probate administration’s impact on those accounts is limited. The more basic the type of assets a person owns, the less a trust is needed.
The second aspect to complexity, or really a simple estate, is the ownership of assets with another person and what type of ownership relationship exists between the co-owner(s). I could not possibly describe the different ways people own assets with each other, but it can range from the simple ownership of a house, like a husband and wife in tenancy by the entirety, to complex business relationships, like an LLC, a corporation, or a partnership that requires thousands of dollars in yearly professional fees to keep in compliance with state and federal regulations. The more basic the relationship, the less need for a trust.
For example, if a husband and wife only own a bank account in joint tenancy (see January 2010 Newsletter) then ownership of that asset would transfer to the surviving spouse upon the death of the non-surviving spouse. Probate would not impact that transfer because a decedent’s rights in the asset disappear when one of the co-owners die by operation of law. Thus, if a couple owns a majority of their assets in some type of joint tenancy, the absolute need for a living trust is reduced. In comparison, if a person’s owns several different pieces of real property or business that might require a trustee to step in and run the business upon the passing of a business owner, a trust of some type would be advised.
There should be only one more post on this subject wrapping up when it makes sense to create a revocable living trust and when it might make sense to delay that creation.