Living trusts can have some significant advantages over an ordinary will, but trusts are a vastly underused estate planning vehicle. Most people still think of them as something only the wealthy need.
In reality, there are several ways a living trust could potentially benefit you.
What's the difference between a living trust and a will?
A living trust is another term for a revocable trust. It creates a legal holding place for your assets during your lifetime. You retain full control over a living trust throughout your lifetime and can add or subtract to it at will. At your death, a successor trustee — someone that you have named as your representative — is put in charge of the trust. The assets can be transferred to your designated heirs.
With a will, the legal holding place for your assets — which is your estate — is established only once you die.
How does a living trust actually benefit you?
In many ways, living trusts are superior to ordinary wills. While each situation is different, the top benefits include:
- The successor trustee can step in if you are incapacitated. This is useful if you fall ill during your final years or develop a problem like dementia. The successor trustee will have significant accountability to the court and be required to file reports on expenditures, property sales, and so on — unlike someone who simply holds your power of attorney. That's greater security for you, no matter what your situation.
- Your estate completely avoids probate. This includes property that's in another state, like a summer home or hunting cabin. This greatly simplifies things for your heirs and helps you avoid the unnecessary tax consequences of probate on your legacy.
- Your family's financial affairs will remain private both before and after your death. Wills are public records, so everything in it can be scrutinized by anybody who wants to look at it. That's an unpleasant idea to many people, especially if they value their privacy. Living trusts are not public documents, and your estate will retain its privacy.
While it does take a little more paperwork to establish the trust and a little more effort to fund it (by transferring bank accounts, bonds, stocks, and property to the control of the trust), a living trust is often far superior to an ordinary will. If you're interested in learning more about how living trusts work and their potential benefits for you, talk to an attorney, like those at Rudolph and Chonoles LLP, today.