Compliments of Our Law Firm,
Written By: The American Academy of Estate Planning Attorneys
As you research your estate planning options, you’re sure to hear a lot about living trusts. In recent years, the living trust has become such a popular tool that it forms the cornerstone of many people’s estate plans.
What are the benefits of a living trust and why would you opt for one as part of your estate plan?
Protect and Provide for Beneficiaries
The foundational goal for any estate plan is to provide for your loved ones in the event of your disability or death. A living trust allows you to do this and maintain some control over their inheritances even after you’re gone. You can protect vulnerable beneficiaries by controlling when and how they access your assets. For example:
- Parents of minor children can use a trust to support their children while giving the trustee specific instructions for the use of trust funds, the circumstances under which the children will be allowed to access the funds, and the age at which the funds will be turned over to the children.
- A beneficiary who is financially inexperienced or has a track record of irresponsibility with money can be given restricted access to trust assets, protecting his or her inheritance and preserving it for as long as possible.
- A living trust can also be structured to shield beneficiaries’ assets from the threat of creditors, con artists, and divorcing spouses.
One of the best-known benefits of a living trust is that it allows your family to avoid probate. When you die, since your property is titled in the name of your trust, and not in your name, it is not subject to the probate process.
This can be an immense benefit in some states because depending on a number of factors, probate can be a lengthy and stressful process. A trust has the potential to offer a streamlined, simplified alternative.
In the event you are incapacitated during your lifetime, a living trust also allows you to avoid “living probate.” Without an effective plan in place, a debilitating illness or injury could land your family in court where a judge will first determine whether you are incapacitated and will then appoint a guardian to manage your affairs. Not only does this process mean that the private details of your situation are aired in court, it also tends to be expensive, time-consuming, and emotionally taxing. Your family has to contend with the initial court proceeding, plus the guardian appointed typically has to make periodic reports to the court – a process which requires time and money.
A living trust prevents the need for this process because it provides for a Successor Trustee to step in and manage your trust assets according to your written instructions in the event of your disability. This process is handled privately, without the need for a judge’s approval.
Maintain Privacy and Control
Privacy is another benefit of a living trust. Unlike a will, which must be filed in court as part of the probate process, a living trust generally is never made public. If you die or become disabled, your living trust is administered in private, without the need for court supervision.
With no court proceeding necessary to administer a living trust, it is more difficult for family members to contest it. And in the rare event that a lawsuit objecting to the terms of a trust is filed, the nature of the trust poses some inherent advantages. For example, establishing and maintaining a living trust usually involves ongoing contact with bank officials, trustees, and other people who can provide evidence of the owner’s mental competence and intentions.
As with any estate planning tool, a living trust does have some disadvantages. For example, a trust requires maintenance. You have to transfer all the necessary property to the trust. Formal transfers are required even if you serve as your own trustee. Without the transfers, the assets would still be in your individual name, necessitating a public probate.
If you acquire new property that should be transferred to the trust but fail to do so, that property will be classified as probate property at your death, which you hoped to avoid when you established your living trust to begin with.
The initial cost of a living trust may be more than the cost of a will, although a trust generally saves you significant money later on because it allows you to avoid probate expenses. As with any estate plan, it is important to keep a trust updated as your priorities and life circumstances change.
Finally, not everyone needs a trust. That’s why it is important to discuss the advantages and disadvantages of a living trust with an experienced estate planning attorney. He or she can help you choose an estate plan tailored to meet your needs and goals.