Should I have a Living Trust?
In my last post, I briefly discussed what probate entails and how it can be costly, time-consuming, and stressful. I mentioned that there are several ways to minimize or avoid probate. Having a living trust is one way to accomplish this goal. However, it is not the right option for everyone. Read on to see if a living trust may be right for you.
What is a living trust?
A living trust is simply a fiduciary relationship where someone, known as the grantor, gives property (cash, stocks, bonds, real estate, etc.) to another, known as the trustee, to hold for the benefit of a third person, known as the beneficiary. We create a living trust during the grantor’s lifetime versus being made upon the grantor’s death via a will (more on trusts created by a will in my next post).
Are there different types of living trusts?
Yes. There are generally two types of living trusts. There are “revocable living trust” and “irrevocable living trusts.” Most people use revocable living trusts for probate avoidance because they can be revoked, as the name implies. Generally, the grantor of a revocable living trust is the trustee, giving the grantor nearly complete control of the assets within the trust (limited by the trust provisions and state law).
How does a living trust avoid probate?
When a person creates a living trust, the grantor no longer owns the property. Instead, the trustee holds the property in his capacity as the trustee. The same is true even if the grantor is the trustee. Since the grantor no longer owns the items in the trust, probate is not needed to transfer the property. Furthermore, living trusts can continue even after the grantor dies. The terms of the trust determine its length and how the property in the trust is distributed to beneficiaries.
How much does a living trust cost?
Living trusts generally cost much more to create than a simple will or even complex wills. By “much more” I mean thousands of dollars more. Many attorneys push living trusts because they can charge much more money to create your estate plan if you have a living trust included.
Are there other ways to minimize or avoid probate?
Yes! Most people can minimize or avoid probate without having to create a living trust. By jointly titling property, having your bank set up your accounts to transfer to another or pay out to another upon your death, and by properly naming beneficiaries of life insurance and retirement accounts, you can minimize and sometimes eliminate the need for probate without having to pay thousands of dollars to set up a living trust.
Who would benefit most from having a living trust?
As mentioned above, living trusts are time-consuming and costly to create and maintain. While, in some cases, the time and costs of creating and maintaining a living trust are justified, it is not suitable for everyone. Those who would get the most benefit from having a living trust are already around or beyond retirement age and have significant assets, both for funding the trust and funding their retirement. Younger individuals and couples who already have a significant wealth may also benefit from a living trust, but trusts are usually not the correct route for people who are not near the age of retirement.
Is a living trust right for me?
Many attorneys push living trusts as the primary estate planning tool because the trust property avoids probate (and attorneys make a lot more money creating trusts). However, the time and costs of maintaining a living trust may not be in your best interest, even with the benefit of avoiding probate. I recommend talking with an estate planning attorney who can discuss whether a living trust would benefit you. If you have any questions regarding living trusts, if you want to talk with someone about whether a living trust is suitable for you, or if you have any other estate planning questions or concerns, schedule a time to talk with me.