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 a living trust works. Here is what we believe, at a minimum, 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 not the same as a will
Wills and living trusts are not the same. Although wills and living trusts both allow for the distribution of assets, they do not operate in the same way. A will basically provides a way for you to distribute your assets to your designated beneficiaries only 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 will, except for the most modest estates, your estate will need to go through probate in order for your assets to be distributed to your heirs. However, with a living trust, your estate does not have to go through probate. That means the distribution of property to your heirs can take place quicker.
Living trusts can save you and your family money
A living trust may cost more to draft than a will because a trust is often a more complicated 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 typically will save you more in the long run. A living trust can help eliminate or minimize estate and other taxes, as well as, save on the costs of probate.
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 is lodged with the probate court and subject to inspection by anyone. Living trusts are not made public documents, which means your estate can be distributed privately with the help of our firm.
A durable power of attorney is not necessary for a living trust to 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.
You can modify the terms of your revocable trust
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.
Download our FREE estate planning checklist today! If you have questions regarding living trusts or any other estate planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!