Living trusts are touted as among the best and most common estate planning tools, for a good reason. They are versatile, keep you protected from probate, help you maintain privacy, and can turn a complicated estate into a smooth inheritance. But a living trust is not as simple as a will, and setting one up requires experience and a good deal of legal knowledge. While DIY trust drafting services and online templates exist, it’s strongly advised to seek the help of a legal professional instead.
Creating a living trust can be a commitment. They are harder to update and change than wills and take more time to create. That is why it is important to understand what a living trust can and cannot do for you, so you have a better idea of whether you need one, or instead need a different kind of estate planning tool.
Trust vs. Last Will and Testament
Among estate planning tools, the two most common options seem to be the revocable living trust, and the last will and testament. While these seem to do the same thing on the surface, they are fundamentally different documents.
A trust is established through a trust document, which transfers certain assets from one person into the hands of another, held in trust for the benefit of a third party. As such, you can set up a trust with a family member or financial institution, assigning them as trustee upon your passing, so they can transfer the contents of the trust over to your beneficiaries.
At its core, a trust involves changing the ownership of an asset, so that it is no longer technically yours, regardless of how much control you may be able to exert over it.
A will, on the other hand, pertains only to the assets and properties under your name. While a trust is an arrangement that removes your name from the contents of your estate, a will only goes into effect when you pass away, providing a guide for an executor or administrator to understand how you want your estate to be distributed among your loved ones.
Both have their pros and cons. A will is easier to set up and manage. A trust needs a continuous flow of funds to be adequately managed. Wills allow you to name a guardian for your minor children. Living trusts allow you to bypass probate and provision the flow of funds and assets to your beneficiaries. In many cases, it is wise to use both, managing your largest assets through a trust and using a will to ensure that anything left unaccounted for passes into the trust.
But there are distinct advantages to using a revocable living will, especially for larger and more complex estates.
Features and Advantages of Living Trusts
Allows You to Skip Probate
Primarily, living trusts are used to avoid the probate process. Probate is initiated when a person passes away, and their estate is either left without an estate plan, or with a will. Upon confirming the death with a certificate, a probate court is tasked to legitimize the will and oversee its execution, or distribute the estate as per California’s intestate laws, through a court-appointed executor/administrator – usually someone from the family.
Living trusts, among other things, allow you to completely skip this process for any item within the trust. Because items in a trust are no longer under the ownership of the decedent and are instead under the control of a trustee who has been assigned to pass said items along to the decedent’s beneficiary, there is no need for probate. Aside from taking a long time – the probate process can last anywhere from nine months to well over a year – the probate court is a public matter, making the will and everything it records available to the public through your local city or county records.
Offers Better Legal Protection
Challenging a will is not easy. You must provide proof in the probate court to persuade the court to declare a will illegitimate, proof specifically that the will was produced under coercion, under incapacity, or is counterfeit, or outdated.
Challenging a trust generally is much harder. Trusts are more complicated to set up, but they are also safer and offer greater legal protection. Living trusts are not easily discredited, and unless someone in the family has a serious axe to grind and some major legal firepower, the goal is to have things set up so that you can worry less about a potential lawsuit.
Goes Into Effect During Incapacity
If you are a breadwinner for the family, and alone have access to your financials, chances are that if you are incapacitated, your family will have trouble accessing your money to help with your treatment. A living trust can address this issue by giving limited control to your trustee whilst you are incapacitated, allowing them to draw some funds from the trust to help with your treatment. Without a trust, the process to accessing a person’s finances while they are medically incapacitated is much more complex and time-consuming.
Types of Trusts
Trusts come in many shapes and sizes. While a revocable living trust is versatile and effective for many estates, there are other forms of trusts than can help you get the job done.
From a spendthrift trust to an asset protection trust, be sure to consult a legal professional and take your time to ascertain what it is you want your trust to do.
Do you want to provide for your disabled children? Donate to charity even after you pass away? Put money aside to keep your pet housed, fed, and cared for, for the rest of their life? Restrict the rate at which your children can use their inheritance, if they are still too young and financially unstable? Or keep them and your wealth safe from creditors, through an irrevocable trust? If you want the benefits of a trust without losing control over your assets while still alive, then a testamentary trust is also an option.
Do You Need One?
Living trusts allow you to fine-tune your estate to suit your family’s needs. It also allows you to set up for unusual contingencies, such as an incapacitation without death. But living trusts can also be costly to manage, and difficult to set up. It’s a boon for larger estates looking for the level of control and precision offered by a trust, but for smaller estates, there are other estate planning tools that can do the trick for a lower price and less hassle.
Consult with a legal professional to help ascertain what kind of estate plan would best suit your needs and ensure that your family is well provided for. Estate plans should be efficient and straightforward, matching the size and scope of the estate they’re built for. Depending on your assets and their value, as well as the needs of your family – such as whether you have disabled or minor children, children with financial difficulties, or other specific needs – your estate plan would look very different from the norm.