Apr 02, 2018
By Kim Vine, CPA Partner at Terry Lockridge & Dunn
Everyone should have legal instructions to leave behind in the event of their death. For most people that means having a will, but some people should consider having a living trust. Both documents accomplish the distribution of your assets after you die based on your wishes as set forth in the documents, and both documents can include special provisions such as ongoing trusts for minors or for heirs with special needs. Also, both documents are completely revocable or amendable while you are still living and competent. However, a living trust can have the following potential advantages over a will:
- Avoid costs and hassles of probate court
Living trusts avoid probate, which is a judicial process that is required to distribute assets left by a will.
- Avoid lack of privacy of probate proceeding
As noted above, assets passing via a will are subject to a probate proceeding. Probate proceedings create public records that anyone can view, so you will sacrifice some of your heirs’ privacy. It should be noted, that if you own assets outright (i.e., outside of your living trust), then even without a will they will be subject to a probate proceeding.
- To provide for your disability
A will does not come into play until you die. A living trust, however, will provide for the management of your assets, even while you are alive, but in the event you become unable to manage your own affairs. Without a living trust, you would need either a Durable Power of Attorney or a court-appointed conservator to handle your financial matters if you became unable.
There are a lot of good reasons to avoid putting your heirs through probate. It is a lengthy legal process that can delay their inheritance for several months or longer. It can be expensive and your state may charge fees based on a percentage of the assets you leave behind. And, if you own property in multiple states, there will be a separate probate process carried out for each state, which can be a costly hassle.
Assets in a living trust avoid probate court altogether. When you pass away, control of the trust transfers to a person you choose, whether a relative or a paid professional trustee. They are tasked with managing the trust's assets according to the instructions you leave behind in the trust document.
Be aware of downsides
Creating a living trust can be more expense than just creating a will. A trust also only controls assets that have been placed into it, so assets outside the trust at the time of your death will not avoid the probate process. Thus, it is critically important, after creating a living trust, to take the additional steps of re-titling your assets in the name of the trust. There may also be beneficiary designations (e.g., on retirement accounts) that may need updated. Most importantly, you must have a trustee you can rely on to take control of the trust upon your death or incapacity. This person (or trust company) will be named as the successor trustee in your trust document.
It should be noted that, even if you have a living trust, you still need a basic will to coordinate with it.
A living trust is not for everyone, but it is something you may want to consider, with the advice of an attorney. To discuss your specific situation, reach out to Kim at firstname.lastname@example.org.