Considering the time and expense the probate process, many people choose to include a living trust in their estate planning, as opposed to simply relying upon a will. However, before making the decision to include a living trust in your estate plan, it is important to be familiar with the advantages and disadvantages of a living trust. There are other options available.
What is a living trust?
A trust is basically a fiduciary arrangement that allows a third party, referred to as the “trustee,” to hold assets on behalf of a beneficiary. A “living” trust is just another type of trust that is created to become effective while you are still living. In that way, it is different from a will, which only goes into effect upon your death. Just like any basic trust, the property that is transferred to the trust is held and managed by your chosen trustee. The property is then later transferred to your beneficiaries, after your death. With all of its benefits, there are still some disadvantages that should be considered.
The advantages of a living trust
One of the benefits of avoiding probate by using a living trust, is that when your assets are distributed you will avoid the court costs that probate entails. A living trust can also help in reducing your estate taxes, as the property that is transferred to the trust is no longer considered part of your estate, so the estate taxes can be greatly reduced. Another benefit of a living trust is its private nature. While the probate process is a court proceeding which is open to the public, only you and your trustee are privy to the terms of your living trust. If preserving the privacy of your finances is significant to you, then a living trust may be the way to go.
Living trusts also provide legal protection
There are certain legal protections that a living trust can provide, as a trust is a written legal document and will always be enforceable by the courts. If anyone every challenges any of the asset transfers made after your death, the terms of the trust document provide the best evidence of your intent. A will, on the other hand only provides your instructions as to how your assets are distributed, but cannot control the use of that property in any way, once it has been given to the intended beneficiaries.
The disadvantages of a living trust
Along with its many good attributes, there are also a few downsides to establishing a living trust that should be considered before making your choice. For example, a living trust is usually more limited in coverage than a will, primarily because a trust refers to specific property, instead of an entire estate or category of assets. The possibility of conflicting or contradictory terms in a living trust is also a disadvantage. However, this risk can be eliminated by consulting an estate planning attorney to be sure your living trust is properly drafted. If you have questions regarding living trusts, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.