Query:  Does someone whose estate consists of little more than a house need a trust?
Conventional Wisdom: No.
My Answer: It depends. (This is my answer to almost every legal question.)

Some attorneys think a will-based plan is sufficient for almost everyone.  Some attorneys think everyone needs a living trust.  Still others apply a financial means test.  The latter decree that "every estate worth more than X amount of dollars needs a living trust."  The corollary is that estates worth less than the threshold don't need a trust-based plan. 

Notice that none of these approaches uses the client's goals as a factor.  Nor do they consider what kind of assets are in the estate.  It doesn't really matter how much you have.  What matters is what you have and what you want to accomplish with it.  For example, if you  have a very high net worth but it is all in IRAs and other qualified retirement plan accounts then a living trust won't do you much good because we can't put those accounts in the trust.

This week I met with a client whose mother had done planning with another law firm.  The mother recently died after living almost one hundred years.  The mother's attorney had prepared a living-trust based plan even though the mother's assets consisted of little more than her house.  I confidently told my client that the other attorney had "done things right."  My reasoning?  The mother had disinherited one of her children.  The mother and her other children believed the disinherited child would fight anything and everything about the estate. 

If the other attorney had created a will-based plan for the mother, there would have had to be a probate.  One lawyer I know calls probate "a lawsuit in which you sue yourself."   He's got a point.  Probate cases are court cases where the person who initiates the case is both plaintiff and defendant.  In a probate action you must open a court case and then give everyone else involved notice that there is an open case where they can contest everything you do.  If anyone wants to cause trouble, they don't need to petition the court with a reason to start a court proceeding because the proceeding is already open. 

I'm not suggesting that frivolous matters always get far in a probate case.   However, the persons who want to carry out the will must bear the burden of defending the will in court. 

In contrast, when an estate avoids probate it avoids that open casting call for litigation.  Living trusts and other non-probate techniques put the burden of opening a court case and proving the non-probate transfer to be invalid. 

That's the reason the mother in my example had a living trust.  There will be no court action inviting the disinherited child to cause trouble.  That was good planning.

Now for the caveat.  I think there might have been even better planning.  The reason is that Colorado law mandates that disinherited children must be given notice of the trust and the right to see a copy of it (or at least relevant portions of it.)  Colorado law also requires that a trust be registered with the court, so while there isn't an open court case there is a basis for court jurisdiction over the trust. 

Those legal requirements for settling a trust are still better than probate at avoiding fights.  But there can be other non-probate techniques that can be even better.  For example, the mother might have used a beneficiary deed to transfer the house without probate yet outside of the trust.  (I'll have another post on beneficiary deeds in the future.)  I suspect that when the mother went to the other lawyer she had more assets than she had when she died, and that would certainly have influenced the lawyer to use a trust-based plan.  However, by the time the mother passed all of her assets except her house had been spent on her care.  Had the family kept the lawyer current on the mother's affairs, the lawyer may have advised that a beneficiary deed and/or some "transfer on death" accounts would have been better than relying on the trust.  These techniques would have meant that no notice at all would have to be provided to the disinherited child. 

This is jut another example of why it's important to regularly review your estate plan with your attorney.  Our maintenance plan is designed to make that regular review as painless as possible. In the end, the best estate plan is one that lets you do what you want with what you have, rather than focusing on how much you have.