A Living Trust has several advantages. Depending on your financial situation, establishing a Living Trust might be the best solution for your future goals. As with any estate planning tool, however, it is important to thoroughly consider whether the potential benefits suit your needs.
Below is a summary of each of the primary advantages a Living Trust
could offer you. Within each paragraph is a link to more detailed
information to help you decide whether a Living Trust is right for you.
Avoid Probate – Avoiding probate administration is one of the biggest reasons people decide to create a Living Trust. The probate process isn’t always cumbersome or costly, but its length and expense depends on how many assets you have and what they are worth. Depending on your individual wealth, keeping your assets out of probate could save your heirs time and money. This is only true, however, for assets transferred to the trust while you are alive. To decide whether the expense and trouble of transferring property to a trust is worthwhile, you must consider all your assets and determine if they will be included in the probate process when you die. Here is more information about which assets are subject to probate.
Savings – Generally speaking, setting up a trust will cost you more than a simple will. The initial investment is much higher with a trust, but the potential savings to your heirs could very well make the trust a smarter option. If properly funded, a trust can save your loved ones money in the long run. Assuming you have assets approaching at least $1 million in value, a trust will likely result in substantial savings by avoiding a complex probate administration. If you own your home and maintain several sources of retirement income, you might be surprised how easily you reach the $1 million mark. The choice between the costs of probate versus the cost of a living trust comes down to what type of assets you own.
Asset Management Upon Incapacity – No one likes to think about the possibility of loss of independence. A Living Trust gives you a measure of control over the future by allowing you to specify whom you want to handle your assets and personal care in the event you become incapacitated. In the absence of a legal document detailing your wishes, the probate court might have to step in to create a guardianship, which can quickly drain a lifetime’s worth of assets.
Privacy – Probate is a public process. Everything that passes through the probate court becomes part of the public record. Living Trusts, on the other hand, are administered privately by a successor trustee. This privacy element is another main reason why people choose to create trusts. A Living Trust also makes it more difficult for creditors and disgruntled heirs to challenge the distribution of your assets. From personal experience, I can tell you, from personal experience, having taken estates through probate and settled a living trust, that not having to submit records of every expense and distribution to the Probate Court was a tremendous benefit of a living trust. It brings me to my next point....
Flexibility – A Living Trust is far more flexible than a Testamentary Trust. Because a Testamentary Trust is part of a will, even a minor change to the trust requires rewriting the entire will and observing all the formalities required to make it valid. By contrast, a Living Trust is separate from a will and can be amended at any time with very few formal requirements. Compared to a simple will, a Living Trust also offers more flexibility and control by allowing you to make distributions over time instead of bestowing a large lump sum of money on your heirs. Finally, you can give your trustee tremendous discretion in how he or she makes distributions to trust beneficiaries.
See How Your Estate Plan Works While You are Still Living – With a Living Trust, you have the opportunity to see your estate plan in action. This is not possible with a will. A Living Trust allows you to observe how your executor performs and determine whether your distribution choices accomplish your goals. Maybe you will find that one of your intended beneficiaries needs more or less income than you thought. You might realize that your son is not the best person to take over the family business. Or you might choose to select a different successor trustee. With a Living Trust, you have the opportunity to make adjustments – before it’s too late. It’s also comforting to know that your Living Trust is the same trust that will carry on your life’s work after you’re gone.
Disinherit Relative – Deliberately excluding a family member from your estate can be controversial and complex. We live in an era of blended families, with stepchildren and second spouses. It’s not uncommon for relatives to disagree with your distribution choices. Most states have “elective share” rules that allow a spouse – and sometimes children – to bypass your will to claim a certain percentage of your estate. When these situations arise, so does the likelihood of litigation. The privacy of a Living Trustdecreases the likelihood of a fight over the estate and increases the chance that your wishes will be honored.
Finally, it is important to consider taxes. Many people believe that a
Living Trust saves taxes or eliminates them completely. This is generally a myth (other than the small probate taxes or fees charged by the probate court, see is probate expensive?).
While it is true that a Living Trust can be used to save taxes (an irrevocable trust for example), there are ways similar things can be done with a Testamentary Trust (trust created by a will). See Living Trust
Myths for more information.
Again, it is possible to do more things with a living trust. But, creating and funding the trust will take some time and money. So, in the end, it comes down to the size of the estate and other factors to determine if it's worthwhile to do. However, given the costs associated with probate, in most cases, if you will have assets that have to go through probate, your estate will be better off with it's assets in a living trust, avoiding probate.
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