This is a great question, one that is frequently asked. However, the answer isn’t always black and white. In order to help you determine whether a living trust might fit with your personal needs, let’s address the following questions:
- What is a living trust?
- Very basically, how does a living trust work?
- Why might it be beneficial for you?
What is a living trust? Very simply, a living trust is an estate-planning document used to manage your assets during your lifetime and upon your death. The creator of this trust is known as the grantor; furthermore, that individual typically serves as his or her own initial trustee. A back-up or successor trustee is named should you become disabled or die. Think of it as a contract between you and your trustee.
Very basically, how does a living trust work? A living trust contains two sets of instructions. The first set instructs the trustee on how to manage trust assets during your lifetime. Since you will typically be the trustee, the answer will be self-evident; however, those instructions will be particularly valuable should you become disabled and need the services of your back-up.
Think of the second set of instructions as being very similar to a will. They provide for the disposition of your assets upon your death…either outright or to be held in trust for some specified period of time.
You may amend or revoke your living trust while alive. A living trust does not directly confer tax advantages or disadvantages. In addition, unlike with a will, your assets will pass to loved ones and/or other entities outside of the probate process.
Why might a living trust be beneficial for you? The most significant reason is that your assets, when properly titled in the name of your living trust, will not be subject to probate upon your death. This can be significant in terms of saving probate-related expenses and time.
Several other reasons are related to probate. Here are just a few:
- Privacy – Is privacy important to you? Probate files are a matter of public record. As such, much of the privacy you enjoyed during your lifetime vanishes. Since a living trust enables you to by-pass probate, that privacy continues.
- Ancillary probate – Do you own assets in another state? With a will-based estate plan, you will likely be required to probate such assets through a given state’s probate process, something that can be expensive and time-consuming. Nearly every state waives its probate requirement if the asset in question is properly titled in the name of a living trust.
- Disability – What if you become disabled? Properly drawn, a living trust may eliminate the need for a court-appointed guardian in the event of your incapacity. Your successor trustee, either a loved one or trust department, will be able to fill your shoes and care for you and your family in a manner consistent with the terms of your trust.
- Speed and efficiency – Why would you care about speed and efficiency? First, probate is a court-supervised process, which can make it lengthy to say the least. If you own a business, for example, that process could interfere with its operation. Second, the longer this process is dragged out, the longer before your loved ones can put closure on their loss.
Typically, a living trust is paired with a pour-over will, which is used to “catch” or handle assets that were not titled in the name of the trust. A living trust can be established in the name of an individual and, in many states, the name of a couple.
The Greater Madison area has a wealth of attorneys who specialize in estate planning. If you’re still not sure whether a living trust is right for you, contact one of these professionals.