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If you have been thinking about making or updating an estate plan, chances are you have wondered if you need a living trust. Once upon a time, most people thought of trusts as only for the wealthy. Having significant wealth is definitely a good reason to have a trust, but you don’t have to be a multimillionaire to benefit from a trust. While not everybody needs a revocable living trust, many people are surprised to learn that a trust is the right estate planning tool for their needs.
What is a Living Trust, Anyway?
A trust is a legal relationship between three parties: the grantor who creates and funds the trust; the trustee who manages the trust; and the beneficiary or beneficiaries who receive distributions from the trust. This relationship is created by a document called the “trust instrument” or “trust document.” It sets the terms of the trust.
The most common type of trust used in estate planning is the revocable living trust, sometimes simply called a living trust. Here’s how it works. The grantor, usually with the help of an estate planning attorney, creates the trust and funds the trust with assets that were previously in their own name. During their lifetime, the grantor of a living trust often serves as the trustee and the beneficiary, too. In short, they can use, enjoy, and transfer trust assets just as they did when they owned them. In fact, they can revoke the trust and take the assets back if they want.
When the grantor dies or becomes legally incapacitated, a successor trustee named in the trust instrument takes over managing the trust. The trust instrument also names remainder or contingent beneficiaries who become the beneficiaries of the trust upon the grantor’s death.
So if the grantor can use and manage trust assets just like before they created the trust, why create a trust at all? There are several reasons. And if any of them apply to you, you should consider setting up a living trust.
Benefits of a Revocable Living Trust
Most people who establish a living trust do so to avoid probate. Upon your death, assets owned in your sole name need to go through the probate process, whether or not you have a will. While probate often isn’t as cumbersome as some people expect it to be, it is a court process and can be time-consuming, stressful, and costly. Having your assets in a trust rather than in your own name allows your successor trustee to immediately assume control of the trust assets and manage or distribute them as you dictated in the trust instrument you created. No court involvement is required, and your beneficiaries can receive their inheritance much more quickly.
Another common reason to create a living trust is to exercise control. If some of your beneficiaries are young adults (or even older adults) who might not be able to wisely manage receiving an inheritance all at once, a trust can ensure that they receive distributions as you deem appropriate. If you’re worried about your beneficiaries’ creditors potentially reaching trust assets, an experienced estate planning attorney can help you structure the trust to prevent that. And if you have young beneficiaries who are not old enough to legally own property, their inheritance can remain in the trust until they are ready for it, while distributions are made for their needs. Otherwise, a minor child or grandchild who inherits assets directly (not through a trust) would need to have a conservator appointed to manage those assets.
A trust isn’t just used to plan for distribution of assets after your death; it can protect you during your life in the event of incapacity. If you were to develop Alzheimer’s disease or become unable to manage your own finances for some other reason, your successor trustee could seamlessly take over for you once the need was documented. Otherwise, your family would have to go to court to have a conservator appointed for you. They might not agree on who that should be, and the person appointed might not be someone you would choose. By creating a trust and naming a successor trustee, you get to decide who manages your assets if you can’t.
A living trust also provides you with flexibility in managing your assets and distributing them. Rather than having to change your will when you acquire new assets, such as real estate, investments, or vehicles, you can simply title them in the name of the trust. In addition, having a living trust protects your privacy. Once your will is submitted to the probate court, it becomes a public record that anyone could search. Because the court is not involved in the administration of your trust, there is no record of your trust in court files. Trusts are also less likely to be challenged in court than a will, especially if the will was made later in life.
As you can see, living trusts offer a lot of advantages. So now you might be wondering, “Why wouldn’t someone want a trust?” Trusts do cost more to create than a will, and there’s more paperwork involved. Some estates are so simple that having a trust would be unnecessary, and an unnecessary expense. But for many people, creating a trust is well worth the initial investment of time and resources. If you have questions about whether you need a trust, or want to speak to a living trust attorney, please contact Elder Law & Estate Planning Services to schedule a consultation.
