Top 5 Benefits of a Living Trust

What is a living trust?

A living trust (also called a "revocable" or "inter vivos" trust) is a legal arrangement where you transfer ownership of your assets into a trust that you control during your lifetime. Upon your death, a "successor trustee" (the person whom you've chosen) transfers those assets to your designated beneficiaries without court involvement.

A living trust's terms can be changed at any time during the individual's lifetime, or the trust may be canceled entirely, which is why it's called revocable.

Why might you be interested in including a living trust in your estate plan? Here are the top benefits of a living trust:

1. A living trust avoids probate

The probate process is the court-supervised process of distributing a deceased person's estate. Depending on the estate, as well as the assets and individuals involved in the state where you live, probate can become a lengthy and costly process, potentially consuming 3% to 7% of an estate's value. which may delay distributions to your beneficiaries and cut down on what they inherit.

By placing your property in a living trust you can avoid probate because the successor trustee distributes assets according to the trust creator's instructions without court intervention.

Key advantages of avoiding probate include:

• Faster distribution. Your heirs can receive assets in weeks rather than the typical long process of probate, without additional expenses to the estate.
• Out-of-state property. If you own property in another state, it passes directly to your beneficiary without being subject to probate in that state (as long as the property title is in the trust).

Should you put your house in a living trust?

Real estate is one of the most common and most beneficial assets to place in a living trust. Your home typically represents a significant portion of your estate's value, and real property almost always goes through probate when passed through a will alone. 

• If you own property in multiple states, probate becomes even more complicated and expensive, because your estate may need to go through separate probate proceedings in each state where you own real estate.
• Transferring your house to a living trust involves creating and recording a new deed that moves title from your name to the name of the trust.
• Federal law (the Garn-St. Germain Act) prevents mortgage lenders from calling your loan due simply because you've transferred your home into a revocable trust. 
• Transferring property to a revocable living trust typically doesn't trigger a property tax reassessment since you remain the beneficial owner during your lifetime.

For many homeowners, placing their house in a living trust offers one of the clearest paths to avoiding the delays and costs of probate while ensuring their property transfers smoothly to loved ones.

2. A living trust may save money

A living trust can save money by avoiding probate expenses at your death. However, at its creation, a living trust is likely to be more expensive than creating a last will and testament. 

• A living trust is a more complex legal document that requires more actions because you also must "fund the trust" with your assets, meaning transfer the ownership of your property to the trust.
• Living trusts may provide savings for married couples in the form of joint living trusts.

When a living trust makes financial sense

A living trust typically offers the greatest cost savings when your estate includes: 

• Real property
• Assets in multiple states
• Complex family situations that could lead to probate disputes

Do living trusts provide tax benefits?

One common misconception is that a revocable living trust will reduce your taxes whereas, in reality:

• A living trust doesn’t provide estate tax or income tax savings during your lifetime. 
• As you retain control over the trust assets, the IRS still considers them part of your taxable estate.
• Any income generated by trust assets is reported on your personal tax return.

However, living trusts do offer important tax-related benefit for your heirs: 

• Assets held in the trust receive a "step-up in basis" at your death. 
• For instance, suppose you purchased stock for $10,000 that's worth $100,000 at your death. In this case, your beneficiaries' cost basis becomes $100,000. 
• If they sell the above stocks shortly after inheriting, they'd owe little or no capital gains tax, which is a significant savings on appreciated assets like real estate or investments.
• If reducing estate taxes is a primary goal, note that the federal exemption is $15 million per individual in 2026. 

If decreasing the size of your taxable estate is a priority, you may want to explore irrevocable trusts. However, irrevocable trusts require you to give up control of any asset placed in it permanently, which doesn't apply to revocable living trusts.

3. A living trust protects your privacy

As mentioned above, one of the benefits of a trust is the avoidance of the probate process.

A living trust is a private document between the parties involved and doesn’t become part of the public record, so your assets and distribution stay completely private.

A will, on the other hand, is public record, so everything in it becomes public as well.

4. A living trust assists in the event of incapacitation

If you become ill or incapacitated, the following happens with a trust: 

• The person you have chosen as successor trustee can step in and manage your affairs without the intervention of a court. 
• You can avoid a court-appointed conservatorship for your affairs. 

Moreover, since a living trust is revocable, you can dispute the implication that you are incapacitated and retain control of your own affairs.

5. A living trust provides certainty and peace of mind

When drawn up correctly, a living trust sets out a clear plan to deal with all of your assets. This can help you:

• Prevent unintentionally disinheriting someone
• Provide ongoing care for a loved one with special needs
• Protect assets from certain people

All of these things can give you peace of mind now, as you know that your estate will be handled exactly as you wish later. The existence of the trust can also provide certainty and comfort to your loved ones during an already stressful time.

Deciding which is better for you: a trust or a will

Living trusts provide powerful benefits for many, and with the right guidance, you can discover if they're the perfect fit for your unique needs. It will help you make a more informed decision about whether a living trust fits your situation. To choose what is best for your estate—a living trust vs. a will—it’s important to understand the differences between them.

• A will has no effect on your property while you're still alive and only takes effect after your death.
• A living trust will not have to go through the probate process, as a will must. 
• In some states, the probate process for a last will is quick and inexpensive, so it depends on your state and the types of assets you own. 
• A last will is simpler and less expensive to set up.

Note, though, that if you choose to create a living trust, you should have a “pour-over will" to catch any assets that have inadvertently been left out. This would ensure that your property doesn't fall subject to state intestacy laws, which mandate the distribution of assets not covered by a will or trust. A pour-over will goes through probate.

Who should consider a living trust?

A living trust isn't necessary for everyone, but certain circumstances make it particularly valuable. Here are the situations where a living trust typically makes the most sense:

• You own real estate. Especially if you have property in more than one state, avoiding multiple probate proceedings can save significant time and money.
• Your estate exceeds $100,000. At this level, probate costs become substantial enough that a living trust often pays for itself.
• You have a complex family situation. Blended families, minor children, or beneficiaries with special needs benefit from the detailed control a trust provides.
• You own a business. A living trust can help ensure smooth succession and continued operation without court delays.
• Privacy matters to you. If keeping your estate details out of public records is important, a trust offers confidentiality a will can’t.
• You want protection against incapacity. If you're concerned about managing your affairs as you age, a living trust provides a built-in mechanism for your successor trustee to step in seamlessly.

On the other hand, if you have a relatively simple estate with few assets, straightforward beneficiary situations, and property in only one state, a well-drafted will combined with beneficiary designations on accounts may accomplish your goals more efficiently. The key is matching the complexity of your planning tools to the complexity of your actual situation.

Are you ready to create a living trust?

If you've decided that you're ready to create a living trust, you can get started immediately: Take an inventory of your assets, think about who you want to inherit, and consider carefully who you will choose as your successor trustee.

Common mistakes to avoid with living trusts

The most critical mistake people make is failing to fund their trust. Creating the trust document is only the first step. If you don't actually transfer your assets into the trust by changing titles and ownership, those assets will still go through probate. An unfunded trust defeats the entire purpose of avoiding probate in the first place.

Other common pitfalls include:

• Forgetting to add new assets. When you purchase a new home or open new accounts, you must transfer them into the trust to maintain its effectiveness.
• Misaligning beneficiary designations. Retirement accounts and life insurance policies pass by beneficiary designation, not through your trust, so these designations should be coordinated with your overall estate plan.
• Not updating after life changes. Marriage, divorce, births, and deaths may require revisions to your trust to reflect your current wishes.
• Choosing an inappropriate successor trustee. Select someone who is trustworthy, financially responsible, and likely to be available when needed.

Setting up a trust doesn't have to be time-consuming or complicated, especially since now you can find living trust services online to streamline the process. After answering some simple questions, you'll be well on your way to incorporating a living trust into your estate plan and to have better peace of mind about your estate in general.

FAQs about living trusts

What's the difference between a living trust and a will?

A will only takes effect after your death and must go through probate, which becomes public record. A living trust holds your assets during your lifetime and passes them to beneficiaries privately, without court involvement.

Do I need both a will and a living trust?

Yes, you should have a "pour-over will" to catch any assets inadvertently left out of the trust. This ensures those assets are distributed according to your wishes rather than state intestacy laws. 

Michelle Kaminsky, Esq., contributed to this article.