- Life & Money
- Family & Work
- Your Family
- Carole Jacobs
- May 17, 2018
What Is a Living Trust?
A living trust certainly sounds like something that only makes sense for the super wealthy. But you needn’t count a yacht or a third home in Napa Valley among your assets to make one work in your estate planning. Regardless of your income level, a living trust offers certain advantages that, for example, a will does not. But before considering whether a living trust makes sense for you, let’s start with the basics.
WHAT IS A LIVING TRUST?
A living trust is a legal document that puts you in control of how your money and property are passed along to your heirs during your life and after death. This kind of trust is generally revocable and you can change its terms at any time. When you set up a living trust, you appoint yourself trustee and transfer title of all or most of your assets to your trust. You retain the ability to manage those assets however you want. And if you’ve placed your assets in a revocable trust you can change or cancel it at any time while you’re alive.
HOW IS A LIVING TRUST DIFFERENT FROM A WILL?
At your death, the assets in a living trust are transferred to your beneficiaries, per your instructions, just like a will. However, a living trust offers certain advantages that a will does not.
You avoid probate. With a living trust, your assets are distributed according to your wishes without the delay and expense of probate court, which is a legal process of getting assets where they belong. This process can be costly, and resulting fees can reduce the amount you pass on to your beneficiaries. The probate process could take weeks to several months, but a living trust allows your loved ones to sidestep that process and gain faster access to your assets.
You can keep things private. When a will is executed after your death, it becomes part of the public record. Anyone can go to the courthouse and see the details of your estate. Trust documents aren’t filed with the court, so your personal documents will remain private.
You have a back-up. For a living trust, you name a successor trustee. That person or entity (say, a bank) will represent your interests if you die or are unable to manage them on your own while living. And unlike a will, this can be handled without any involvement by the courts.
You can protect certain beneficiaries. A living trust allows you pass assets to children, young adults and loved ones with special needs while protecting those assets for their future at the same time.
You can spell out how you want something to happen. Want to make sure your children don’t get all the money in your estate until a certain age? A trust is one way to make that happen (without one, they would typically get full control of anything you leave them at 18). You could specify that money will be used in a certain way when they’re young; at 18 they get some money for college; at age 25, 30, or 35 they get everything else. You get to decide when and how your beneficiaries will receive their inheritance.
But before you get the process rolling, there are drawbacks to a living trust you’ll want to consider. For one, drafting a living trust typically costs more time and money than a will. It also takes a considerable amount of effort to transfer assets and property to the trust. Finally, you’ll also want to consider creating a “pour-over” will, which is a separate document that ensures any assets you acquire after the trust is set up are automatically included in the trust when you pass. If you have kids who are below 18, you’ll likely include in your pour-over will a nomination of a guardian. You can’t do that with a living trust.
IS A WILL OR LIVING TRUST RIGHT FOR YOU?
Both a will and a trust enable you to provide for the distribution of your assets upon your death. An attorney can help you determine which one will give you the greatest confidence that your assets will be distributed according to your wishes, and as smoothly as possible, for your heirs.
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