Is a living trust necessary?

If you’ve looked for a way to avoid probate, you might be familiar with living trusts.

Fred George, a member of law firm Eckert Seamans Cherin & Mellott, warns that while living trusts can be a valuable tool, they are too often purchased by individuals at the recommendation of salespeople who are selling financial products to be placed in the trusts.

George says there can be disadvantages to a living trust for a business owner, as running your business can become more complicated once you’ve transferred it to a living trust. Banks and other credit institutions are growing more comfortable with living trusts, says George, but some bank representatives still get confused.

“If a business is in the name of a trust, bankers frequently don’t understand how to handle its credit,” says George.

They can be uncertain about who is the debtor or the parties in interest, leading to delays and added expenses if the banker wants to verify the validity of the trust or other matters.

George says owners of closely held businesses can benefit from a living trust, particularly if they have large, easy-to-transfer items to place in the trust.

Living trusts have four main advantages:

* Unlike a will, which becomes a matter of public record when a person dies and requires a filing fee based on the size of the estate, a living trust allows you to retain privacy of your assets. As George cites in an extreme example, if you want to disinherit a child who has a substance abuse problem, you can explain why in a living trust, whereas you might not want to be so explicit in a public document.

* A living trust can be cheaper to administer than a probated will because you’re carrying out a large part of the process of transferring your assets in advance.

* Married couples can divide their joint assets to take full advantage of estate tax exemptions.

* Provisions can be made for management of your assets and for your care if you become incapacitated. A business owner in failing health or of advanced age may want or anticipate the help of a trustee. How to reach: Eckert Seamans Cherin & Mellott,