Why a Living Trust Might be Right for You and Your Family
If you plan to do a basic will for your estate plan (or already have a will), you may want to consider using a “living trust” instead. There is a commonly held belief that trusts are only appropriate for people with very large estates. However, trusts can offer significant benefits to everyone. This article will explain what those benefits are so that you can decide if a trust might be right for you and your family.
What is a “Living Trust”?
Simply put, a revocable inter vivos trust, or “living trust,” is a separate legal entity created prior to your death to own some or all of your assets. You are the “grantor” of the trust because you are funding the trust with your assets. In the trust agreement, you name one or more “beneficiaries” who are entitled to the trust assets and a “trustee” to manage the trust assets on behalf of the beneficiaries. Notably, you can name yourself as both a beneficiary and the trustee of your own living trust! You can keep complete control over the trust and trust assets, receiving distributions of income and principal at your discretion. Alternatively, you could name someone else as trustee to do this for you, if you would prefer a trust and investment expert to manage the assets. The important thing is that you have the ultimate control over the trust during your life and can modify it or revoke it entirely as you wish. In a way, this may seem like you are just transferring assets from one hand to the other, but the legal effects are significant.
Avoidance of Probate
Similar to a will, a living trust contains provisions for the disposition of your assets upon your death. Unlike a will, it does not need to be filed in court and administered under the supervision of a judge. Below are some of the benefits of avoiding the probate process:
- Privacy – While a living trust is a private document that can be kept private after your death, a will is made available for inspection by any member of the public after it is filed with the court. Any related estate documents or reports that are filed with the court during the probate process are also available for public inspection.
- Cost Savings – Probate proceedings can be quite costly when factoring in attorneys’ fees (to counsel the executor and prepare the necessary paperwork), executors’ fees (to administer the estate), court filing fees, and related costs and expenses. If there is a question regarding the validity or interpretation of the will, or if the decedent owned difficult-to-value assets or real estate or property in another state, the cost will be even higher. By having a living trust instead, these costs can be minimized or avoided entirely.
- Time Savings (earlier distributions) – It is not unusual for the probate process to last a year or more before full distributions can be made to the beneficiaries named in a will. This is due to the necessity of submitting estate accountings to the court, obtaining judicial approval for certain actions, and waiting legally-required time periods before taking certain steps. It can be a lengthy and frustrating ordeal. By contrast, a living trust allows the trustee (or successor trustee named in the trust if you were the original trustee) to immediately make distributions to the beneficiaries after your death since the assets are already owned by the trust and no judicial approval is required.
- Smooth Transition to Family Trusts (if desired) – There may be circumstances where establishing a trust for a beneficiary’s share of the assets is preferable to an outright distribution to the beneficiary (i.e. a young child or child with a disability). Both a will and a living trust can provide for the establishment of a trust for a beneficiary. However, the establishment of the trust and transition of assets into it tends to be much smoother and quicker when done pursuant to a living trust, in large part because there is already an acting trustee with authority to act. The probate process can lead to delays in the establishment of trusts created by wills, especially if the individual or corporate entity named as trustee in the will declines to act as trustee.
Control and Protection in Case of Incapacity
A will only governs the disposition of assets after death. If you have a will (without a durable power of attorney) and become incapacitated, a court hearing would be necessary to confirm your incapacity and to appoint a guardian to handle your financial affairs. A living trust would avoid this scenario. If someone other than you is the trustee, the trustee would continue to manage the trust assets during your incapacity as before. If you were the acting trustee, the successor trustee named by you in the trust document would take over as trustee once you become incapacitated. In either case, a public court hearing and court-appointed guardian would not be necessary.
We Are Here to Help
Although wills and living trusts are often used for the same purpose – to provide for the disposition of personal assets after death – you can see that a living trust offers certain benefits over a will. If you think a living trust might be right for you and are interested in learning more, please don’t hesitate to contact us at Stillman Bank. Our Trust Department serves as trustee and successor trustee for many of our clients and we would be happy to meet with you to answer any questions you have.
Joseph McCoy, JD – Trust Officer
Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank, and (3) are subject to investment risk including possible loss of principal.