Most people create living trusts as a method of probate avoidance, since the probate process can be very expensive and lengthy legal proceeding. According to nearly all state probate laws, property that is owned solely by the deceased will go through probate, in the absence of estate planning. However, property that is jointly owned with someone else, automatically passes on to the surviving joint owner. This happens without going through probate. Before deciding whether to create a living trust, consider the pros and cons of a living trust, along with alternatives that may be available to you.
What is a Living Trust?
A living trust is a particular type of trust, created while you are still living, as opposed to becoming effective only after your death. As with all other trusts, the property is transferred from the original owner to the trustee. The trustee then transfers the property to the beneficiaries, under the terms of the trust. A living trust usually pertains to specific property or assets, instead of your entire estate. There are advantages and disadvantages to including a living trust as part of your estate plan.
The pros of living trusts
Circumventing the probate process is one clear advantage of having a living trust in place. Having a trust will save the time, money and complications related to distributing the deceased’s property. There are tax advantages as well, when you create a living trust. They can reduce the overall estate taxes that will be imposed on your estate, upon your death. Another advantage is that the terms of a living will remain private. On the other hand, a will becomes public record, during the probate process. This means your privacy, regarding your property and finances, will be maintained after your death.
There are certain legal protections that accompany living trusts. First, a living trust is a written legal document, and enforceable by the courts. In the case of a challenge to any asset transfer after your death, the trust document will provide evidence of your intentions. More importantly, because a living trust functions while you are still alive, it is difficult to challenge its terms.
The cons of living trusts
Despite all of its advantages, there are some disadvantages that should also be considered. First, a living trust is more limited than a will, typically referring to only specific property. As such, the terms of your living trust need to be as specific as possible, when describing that property. Also, be careful to avoid any conflicts between the terms of your living trust and other instruments included in your estate plan. Another factor to consider is the possible need for a durable power of attorney, in addition to the living trust. This may be necessary because a successor trustee may not have the authority to manage any additional property not included in the living trust.
If you have questions regarding living trusts, or any other incapacity planning needs, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.