10 Questions to Ask an Attorney When Setting Up a Living Trust

Living trusts are often portrayed as the ultimate estate planning tool and something everyone needs. The truth is, a living trust may not solve all your problems, but it may be one piece of your estate planning toolbox. To find out what’s right for you, ask your attorney the following questions.

1. What property can go into a living trust?

Most assets can be transferred into a living trust, including:

• Real estate (such as your home, rental properties, or vacant land)
• Bank accounts and brokerage accounts
• Personal property, like jewelry, furniture, art, and collectibles
• Business interests, such as an ownership stake in an LLC or partnership

However, certain property—such as some retirement accounts (e.g., 401(k)s and IRAs), health savings accounts, and certain life insurance policies—may not be appropriate to transfer directly into a trust. An estate planning attorney can review all of your assets and advise you on which ones should be retitled in the name of the trust and which are better handled through beneficiary designations.

2. Who should be my trustee?

Most people name themselves as trustee so that they can manage the trust assets during their lifetime. You can choose anyone or even a corporation as your trustee if you prefer. If you name yourself, you will need to name a successor trustee who can step up to manage the trust after your death or incapacity.

3. Does a living trust help avoid estate and probate taxes?

A revocable trust (one that can be altered during your lifetime) does not avoid estate taxes that are applied by your state or the federal government. However, certain trust structures, such as AB trusts, may be used as part of a broader estate plan to help reduce potential estate tax liability for married couples.

Assets owned by living trusts generally do not pass through probate, and so your estate should avoid any probate fees or costs. Your attorney can advise you on how these rules apply in your state.

4. What are the benefits of a living trust?

Living trusts offer a variety of benefits, which is why they have become so popular. Properly funded living trusts allow your estate to avoid probate. By doing so, you avoid the costs associated with having a will probated, but you also avoid the delay associated with probate. It can take months for a last will to be probated, but when you create a living trust, the assets in the trust can typically be distributed to your beneficiaries more quickly.

Beyond probate avoidance, a living trust can help you accomplish several specific estate planning goals. If you have minor children, a trust can protect their inheritance until they reach an age you consider appropriate. For families with a loved one who has special needs, a properly structured trust can provide financial support without disqualifying them from government benefits like Medicaid or SSI. A living trust also allows you to manage your assets during periods of incapacity—not just after death—ensuring your finances stay in trusted hands if you're unable to handle them yourself. For blended families, trusts offer a way to structure inheritances that balance the needs of a current spouse with children from previous relationships.

Additional benefits include the following:

• Flexible distribution timing. You can delay distribution to later dates, such as your beneficiaries' milestone birthdays.
• Easy to modify. Because it is not an irrevocable trust, you can alter or dissolve it at any time.
• Privacy. Since it is not probated, a living trust never becomes part of the public record.

5. What are the drawbacks of a living trust?

Living trusts cannot include all of your assets since some are not eligible to be owned by a trust. The other problem with a living trust is that it can only control the assets you specifically transfer into it, so if you forget to change ownership of something like a bank account, it won’t be covered by the trust.

If you rely solely on a trust for your estate plan, any assets left outside the trust may need to pass through a will or, if you don’t have one, according to your state’s intestacy laws.

Another potential drawback is cost. In most cases, drafting a living trust is more expensive upfront than preparing a simple will. However, while there is an initial cost to create the trust, ongoing management expenses are typically minimal if you serve as your own trustee during your lifetime. Whether the higher upfront cost is worthwhile depends on the size of your estate, your goals, and whether avoiding probate would provide long-term savings.

6. Should I choose a revocable or irrevocable trust?

When people refer to a "living trust," they typically mean a revocable living trust—one you can change or dissolve at any time during your lifetime. An irrevocable trust, by contrast, generally cannot be modified once it's established. Understanding this distinction is essential because it affects everything from your control over assets to tax implications.

With a revocable trust, you maintain full control. You can add or remove assets, change beneficiaries, or cancel the trust entirely. However, because you retain control, the assets are still considered part of your estate for tax purposes and are not protected from creditors. An irrevocable trust removes assets from your estate, which can reduce estate taxes and shield those assets from creditors or lawsuits—but you give up the ability to make changes.

Most people creating their first trust choose a revocable trust for the flexibility it offers. Irrevocable trusts are typically used in specific situations, such as when estate tax reduction is a priority or when asset protection is essential. Your attorney can help you weigh the tradeoffs based on your financial situation and goals.

7. Do I still need a power of attorney?

Living trusts have all of your assets already placed in the ownership and management of a trust, so that should you become incapacitated, they are already being handled for you. Most attorneys recommend you also draw up a power of attorney that will authorize someone else to make legal and financial decisions on your behalf for non-trust-related matters, such as paying bills, handling taxes, and dealing with retirement accounts, should you become incapacitated. 

8. What is the difference between a living trust and a will?

A living trust provides for the management and ownership of only the assets you specifically place into it. A trust is designed to function during your life and after your death. A will provides for the distribution of all of your assets upon your death. It only provides instructions for what will happen to your assets after you die.

9. How do I create a living trust?

To create a living trust, you need to obtain living trust forms for your state. Complete the forms and sign them in accordance with your state's laws. The trust is not functional until you transfer ownership of assets into it.

10. Should I also have a will?

Most attorneys agree that if you create a living trust, you should also have a will. This will, sometimes called a pour-over will, is your insurance. In case there are any assets left out of your trust, the will directs that those assets be placed into the trust. In this way, all of your assets can be distributed according to one document.

Living trusts provide a lot of flexibility and privacy and can be an important part of your estate plan. Considering all the options available to you can help you make the best choice.