For most clients, creating a living trust is a way to avoid the time and cost of probate. Each state has its own probate laws establishing the requirements for probate administration. If you are considering a living trust as part of your estate plan, then you are likely wondering how does a living trust work? Here is what you should know.
What exactly is a living trust?
A “living trust” is a particular kind of trust that goes into effect during your lifetime, as opposed to being created by your will after your death. As with other types of trusts, the property you place in trust will be managed by a trustee, and then distributed to your beneficiaries as you instruct. A benefit of a living trust is that you can name yourself to serve as trustee while you are alive, and then a successor trustee will take over when you die. Living trusts are valid in all fifty states regardless of where the trust was originally created.
Living trusts are not the same as a will
Although wills and living trusts both allow for the distribution of assets after death, they do not operate in the same way. A will basically only provides a way for you to distribute your assets to your designated beneficiaries after you die. A living trust, on the other hand, holds your assets in a trust account for your benefit during your lifetime. Then, after your death, the assets are distributed to your beneficiaries.
Living trusts can help with probate avoidance
One primary advantage of creating a living trust is the ability to avoid the time and expense of a probate proceeding. With a valid will, your estate will need to go through probate in order for your assets to be distributed to your heirs unless the estate is very modest. However, with a living trust, your estate does not have to go through probate. That means there can be faster distribution of to your heirs.
Living trusts can save you and your family money
A living trust will often cost more to draft than a will does. That is because a trust is a more intricate legal document. Also, funding or transferring the property to the trust requires additional steps. Although a will may cost less to draft, a living trust will save you more in the long run. A living trust can minimize estate taxes, as well as, save on the costs of probate.
Living trusts are less likely to be disputed
Another great advantage of creating a living trust is that trusts are generally less likely to be disputed. Will contests can cost your estate a substantial amount in court fees. However, with a living trust, you can reduce the potential for these additional expenses. A living trust is a legally binding agreement that clearly spells out your intentions making them hard to dispute.
A living trust provides more privacy
If maintaining your privacy is important to you, then a living trust is a great choice. The terms of a will become public record as it goes through probate court. Living trusts are not made public, which means your estate can be distributed quite privately.
A durable power of attorney is not needed to make a living trust work
Unlike a will, a living trust can be drafted so that a successor trustee can automatically take over managing the trust property if you become ill or incapacitated. With a will, though, you would also need a durable power of attorney to oversee your affairs. A living trust actually provides the same protection without the need for court intervention.
The terms of a revocable trust can be modified
Because living trusts are revocable, you can modify the terms of the trust at any point while you are still alive. Indeed, it is a good idea to review your trust agreement occasionally so you can make any necessary changes. This is especially true when you there are changes in your family circumstances such as the birth of a new child, marriage, divorce, or death. Your ability to amend or revoke your living trust is unlimited while you are still living.
If you have questions regarding living trusts or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us at (916) 437-3500.