A living trust is a type of trust that is created while the creator is still alive. A living trust allows the person making the trust (known as the "grantor") and the person who receives the benefits of the trust (known as the "beneficiary") to avoid probate. With a living trust, a person is appointed to manage the funds of the trust. This person is known as the trustee.
You can sometimes be the trustee of your own living trust, thereby controlling all property in the trust. (A living trust is also commonly known as an "inter vivos" trust).
The main advantages of living trusts or inter vivos trusts are:
- Avoiding probate of certain property in the will (probate is the process of distributing the person’s estate after they become deceased);
- Reducing estate taxes and other costs; and
- Setting up long-term property management.
The laws governing living trusts will vary from state to state. Whether or not you decide to set up a living trust will depend on your goals and needs with regard to your estate and assets.
How Can a Living Trust Help to Avoid the Probate Process?
You can avoid the probate process by transferring property into the living trust before your death. When you do this, all that you transfer into the living trust will pass to the recipients outside of probate. The person you appoint to handle the trust after your death, is called the "successor trustee." They are responsible for transferring ownership to the beneficiaries you named in the trust.
This is a generally fast process, and there are no fees involved. Once property is transferred to the named beneficiaries, the living trust ceases to exist, as its purpose has been fulfilled.
Is it Easier to Create a Living Trust or Write a Will?
Living trusts are not much more complicated than will documents. The better question to ask is whether a living trust is right for you. The living trust can often be extremely flexible, as many types of property can be included in a living trust. However, living trusts can sometimes be unnecessary. There are differences between a will and a living trust that you should consider, such as:
- Drafting and maintaining a living trust can take more time than writing a will;
- Lawyer's fees for living trusts may be higher than creating a will;
- People with large estates can sometimes save a lot of money by using living trusts, as they can help avoid certain types of taxes;
- Older people who are more likely to die within 10 years may find that a living trust allows them to control the distribution of their property in a direct way;
- A will is usually more appropriate for younger people who are not at the end of their life expectancy;
- Wills are a fine way to distribute your property if you don't have a large estate or many valuable assets, whereas a living trust is better to manage a larger estate with more assets;
- If you are married, you can often leave the bulk of your estate to your spouse by owning your home in joint tenancy. Bank accounts may also be held or possessed in joint tenancy. If you live in a community property state, probate is usually faster and cheaper, and less necessary to avoid.
Are There Any Other Disadvantages to a Living Trusts?
Besides these comparisons with wills, there are other general disadvantages of living trusts. Some disadvantages of living trusts include:
- Limitations: Living trusts sometimes may not cover the entire estate. Thus, living trust documents usually need to be very specific when naming the property;
- Power of Attorney: Even with a living trust in place, it may still be necessary to create a durable power of attorney. This is because a successor trustee may not always have the full authority to manage property outside the trust;
- Confusing Terms: Having a living trust may create some confusion, especially if some terms in the trust conflict with other documents (such as other trusts or will documents).
As mentioned, the features of a living trust may work to your advantage, depending on your needs. For example, you might not actually want to cover your entire estate, especially if your estate is small and you only want to transfer a specific item of property to a person. In such cases, the limitations associated with a living trust might actually work to your advantage.
What are Some Common Legal Disputes Involving Living Trusts?
Living trusts may be associated with various legal disputes. These can include:
- Conflicts over the beneficiaries named;
- Conflicts regarding the selection of the trustee;
- Issues where the trustee has violated their fiduciary duties;
- Disputes over the way that the property is to be distributed.
Conflicts over a living trust can be complex, and may require the guidance of an estate attorney. Also, some conflicts may arise when the living trust is created. An attorney can help provide insight as to the best way to create a living trust.
Do I Need an Estate Planning Lawyer for Help with a Living Trust?
Consultation with an attorney experienced in estate planning may be essential to crafting an estate plan that is sensitive to both your needs and those of your loved ones. A wills, trusts, and estates lawyer in your area will know which type of will or trust is right for you, and can do their best to limit your tax liability.