What is a Living Trust?
A living trust, written by a trust lawyer, is a written agreement that transfers property ownership from a person to a trust while that person is still alive. Most people who set up a living trust set it up as a revocable living trust, which means it can be altered at any time, as long as that person has the mental capacity to make those changes. With a living trust three parties are involved: the creator, the trustee or trustees, and the beneficiaries. The trustee(s), even if they are the same as the creator, manages the assets included in the trust, and agree to divide assets included among the beneficiaries.
Why People Set Up Living Trusts
One of the biggest reasons why living trusts are created is to avoid the probate process of their will after they die. There are sometimes restrictions involved in probate that limit who can serve as a representative for the deceased, and it is also a matter of public record. Those who are concerned about privacy may choose to transfer property via a living trust rather than a will.
Protecting themselves against potential medical incapacitation is another reason people set up a living trust. The trust can name a successor trustee that can take charge of assets and even the custody of minor children, should the original owner find themselves unable to handle their own affairs. The transfer is normally much easier than going through guardian procedures.
Some like the flexibility that a revocable trust provides. If a person writes a will and changes their mind about the terms, a new will needs to be drafted, and the outdated will needs to be destroyed. A living trust only needs to be amended.
Although many see a worthwhile benefit in setting up a trust, it is not a decision that is right for everyone. Here are some potential drawbacks.
Expense and Hassle
Most people who set up a living trust do so with the help of a trust attorney that has experience with trusts and estates. Hiring a lawyer can be costly, and there may also be fees involved in transferring property, as well as a lot of tedious paperwork as each item is transferred from the name of the person to the name of the trust. This includes bank accounts, investment accounts, and various other property. The owner of the trust has to remember to add the word “trustee” when conducting transactions on the account.
Doesn’t Always Save a Lot of Time
When people think of probate many hear the phrase “stuck in probate” in their head and envision months or years of probate court delays after their death, but these delays rarely happen.
Trusts Can Still Be Challenged
A disgruntled relative that is cut off, may still try to challenge the terms of a trust.
Some Property is Difficult to Include
Property that needs to be insured in order to use, such as motor vehicles can be hard to include in a trust. Some insurance companies don’t offer coverage for the vehicle because it technically belongs to “someone else.” Jewelry can also pose problems.
You May Still Want a Will
For many, the question isn’t whether to have a living trust or a will, because both documents are desired. In most cases, the property included in the trust can be transferred immediately, while there can be some lag with the distribution of the will. A will can include property that is not included in the trust, either because including it posed a challenge, i.e. the car, or because you did not have a chance to transfer other property out of your name and into the name of the trust. A will can indicate that property not specifically named to go to a beneficiary will go to someone else other than the default relative that is named by the court.
As a law firm that focuses attention on wills trusts and estates, Wright Probate is ready to discuss your situation and help you determine if setting up a living trust is right for you.