Living trusts allow you to enjoy the benefits of your assets while you're alive and pass them automatically to your chosen beneficiaries once you're gone. Gaining a better understanding of living trusts can be beneficial not only for yourself and your estate but also for your loved ones.
As you compile your estate plan, take some time to learn about what living trusts can do for you. Creating a living trust is no more complicated than making a last will and testament, and it can provide additional advantages for your estate.
Living trust basics
A living trust, also called a revocable or inter vivos trust, is a living legal document as its name implies. A living trust is revocable, which means the creator—also called the grantor—can cancel it at any time. In fact, the creator retains complete control over the assets in the trust and over which assets are in the trust at all. As a trust creator, you can add and remove property as you wish throughout your lifetime. This flexibility is one of the main advantages of a living trust.
Every living trust needs a trustee, who is usually the creator; a successor trustee to take over when you're gone, and one or more people who will receive trust assets called the beneficiaries. You may choose anyone you have confidence in or even a corporate trustee, such as a bank, to be your successor trustee.
You also must decide which property to place in the trust. Assets are placed into the trust by transferring ownership by deed or title to the trust. For example, if your family home is placed in the trust, the deed must be transferred to name the trust as the owner. The process of placing assets in the trust is called “funding the trust," and it is the point at which the trust is officially formed.
Advantages and disadvantages of creating a living trust
Living trusts have several potential benefits for your estate and your beneficiaries. The main advantage is that a living trust bypasses the probate process upon the trust creator's death. Probate is the court-guided process through which a deceased person's assets are distributed. With a living trust, the property passes automatically to the designated beneficiaries, which means they get them more quickly with no additional costs to the estate. In some instances, then, a living trust can also help maximize the inheritance of beneficiaries.
Another major benefit of a living trust is that, if you become incapacitated and can't manage your assets, a living trust allows you to choose the person who would take over your trust. For this eventuality, you should have an incapacity clause that sets the criteria that will define incapacity.
The only true disadvantage to creating a trust is that it simply may not be necessary. Because of up-front costs to create a trust, the expense of a living trust may not be justified in some situations.
Further reasons for creating a living trust
While you don't need a reason beyond simply wanting to arrange important assets in a living trust within your estate plan, in some instances, you should strongly consider a living trust. If you have minor children or a loved one with special needs, for example, you can set up a trust to distribute income to children in a measured way or simply set aside money to care for your loved ones.
Perhaps you have acquired substantial real estate holdings and no longer care to manage them personally. Overall, a living trust allows you to distribute your assets according to your wishes without court intervention—and that may be reason enough for you.
Whether you have special life circumstances or simply want to make things easier on your loved ones after your death, a living trust may be a smart move. If you want to incorporate a living trust into your estate plan, you should consult with a legal professional to ensure that the document accomplishes exactly what you want it to do.