The "living trust" has become an increasingly popular estate planning tool because of the many benefits it offers. About 20% of Americans now have living trusts as part of their estate plans. Perhaps you're wondering whether you should, too.
First, we'll talk about what a living trust is and what it does, and then we'll get into the benefits of a living trust so you can better decide if you should be among that 20%.
What Is a Trust?
A living trust (“inter vivos" or “revocable" trust) holds the assets of the trust creator in a trust for his or her benefit during their lifetime. Then, upon the death of the trust creator, the assets are transferred to designated beneficiaries by the “successor trustee," the person who had been chosen by the trust creator to do so.
A living trust's terms can be changed at any time, or the trust may be canceled entirely, which is why it's called revocable.
Why might you be interested in including a living trust in your estate plan? Here are the top benefits of a living trust:
Probate is the court-supervised process of distributing a deceased person's estate. Depending on the estate, as well as the assets and individuals involved, probate can become a lengthy and costly process, which may not only delay distributions to your beneficiaries but also cut down on what they inherit.
By placing your property in a living trust, however, you can avoid probate because the successor trustee distributes assets according to the trust creator's instructions without court intervention.
This can mean a faster distribution to your heirs — shortening the time frame from months or years to just weeks — without any additional expenses to the estate.
The avoidance of probate may be particularly helpful if you own property in another state, as it would pass directly to your beneficiary and not be subject to probate in that state.
As described above, a living trust can save money by avoiding probate expenses at your death.
Living trusts are also likely to hold up better than a will in the event that someone comes forward to contest the distribution, which can also save your estate money.
Regarding the initial cost, though, making a living trust is likely to be more expensive than creating a last will and testament. A living trust is a more complex legal document that requires more actions because you also must “fund the trust" with your assets, that is, transfer ownership of your property to the trust. You may also wish to change the beneficiary on your life insurance or IRA or 401(k) plan, each of which requires separate paperwork.
Living trusts may provide savings for married couples in the form of joint living trusts, but usually, there isn't much difference in estate and income tax savings with a living trust.
A living trust is a private document between the parties involved and does not become part of the public record. In other words, no one can later go and search public records to find out more about the distribution of your estate.
A will, on the other hand, is public record, so everything in it becomes public as well.
If you become ill or incapacitated, the person you have chosen as successor trustee can step in and manage your affairs without the intervention of a court. In this way, you can avoid a court-appointed conservatorship for your affairs. Moreover, since a living trust is revocable, you can dispute the implication that you are incapacitated and retain control of your own affairs.
When drawn up correctly, a living trust sets out a clear plan to deal with all of your assets. This can help prevent you from unintentionally disinheriting someone, can help you provide care for a loved one with special needs into the future, and even protect assets from certain people.
All of these things can give you peace of mind now, knowing that your estate will be handled exactly as you wish later. The existence of the trust can also provide certainty and comfort to your loved ones during an already stressful time because you've laid everything out for them.
Deciding Which Is Better: a Trust or a Will
In choosing what is best for your estate—living trust vs. will—it is important to understand the differences between them.
The biggest difference is that a will has no effect on your property while you're still alive and only takes effect after your death.
A major benefit of the living trust is that it will not have to go through the probate process, as a will must do.
Note, though, that in conjunction with a living trust, you should have a “pour-over will" to catch any assets that have inadvertently been left out. This would ensure that your property doesn't fall subject to state intestacy laws, which mandate the distribution of assets not covered by a will or trust. The pour-over will does have to go through probate.
As described above, a will offers no privacy as it becomes public record. Your estate may also see cost savings with a trust as opposed to a will.
Ready to Make a Living Trust?
If you've decided that you're ready to create a living trust, you can get started immediately by taking an inventory of your assets, thinking about who you want to inherit what, and also considering carefully who you will choose as your successor trustee.
Once you have made some of those important decisions, contact Barry Law, Inc. at email@example.com or call us at (773) 779-6100 to schedule an appointment to discuss your estate plan.