Living Trusts: A recent phenomenon?
Less than a generation ago, few people knew about living trusts. When a client discussed an estate plan with an attorney, it was always about a will. Having a trust was uncommon. But wealthy people used them because they could benefit from trusts where the average person could not.
Then two things happened to make trusts popular. Advertising became legal for attorneys. Trust law changed so that trusts could benefit people of modest means.
Until the late 1970’s, attorney advertising was unethical and could subject an attorney to disbarment (in all 50 states). Mr. Bates and his partner were newly admitted attorneys in Arizona. They had very few clients, so they decided to advertise. That got them in trouble with the Arizona Supreme Court, and they were disbarred. But they appealed to the U.S. Supreme Court and won (barely – by a 5 to 4 vote). They were reinstated. Because of the Bates decision, all attorneys (and other professionals) are now allowed to advertise their services.
The second significant event happened in the law of trusts. Our trust laws come from the common law of England. English trust law required that the person who made the trust (called the settlor, grantor, or trustor) could not be the person who handled the trust assets (the trustee). Thus wealthy people in England (and in the U.S.) used a bank or trust company to be the trustee. They had to give up control of the assets to the bank, and they had to pay the bank continuing fees.
Recent changes in California law now allow the settlor and the trustee to be the same person. This greatly simplified and reduced the cost of a trust. The person who owns the assets can stay in control. Neither a bank nor trust company, or any third party, is needed.
This simplification, coupled with the attorneys’ ability to spread the news through advertising, was a break-through. It is did not take long for the public to learn the benefits of using a trust. Competition among attorneys has caused a reduction in the legal fees charged for a trust. Now trusts are not only available but easily accessible to all people.