Our estate planning clients commonly ask us whether they need living trusts. The answer is almost always “No.” “Need” is a strong word. There are, however, several factors to consider in determining whether a trust could benefit you.
A revocable living trust, commonly known as a “living trust,” “revocable trust,” or “RLT” is essentially an alternative to the traditional will. Although there are many other types of trusts, the living trust is typically what people think of when they are doing basic estate planning. Generally speaking, the living trust has the same overall effect as a will, but it does certain things better. Therefore, while it is not strictly necessary, it can offer benefits to certain individuals and families over the will. The trade-off is that it is more expensive and time-consuming to establish. Here are the top five factors that we consider in choosing whether to recommend using living trusts as a will alternative:
1. You live in a state with an expensive probate system. Generally (unless your assets are primarily of the type controlled by beneficiary designation), the administration of your assets upon your death will be subject to a state supervised process known as “probate.” States charge a fee to probate estates for the use of the process. It is typically based on the value of the estate and varies from state to state.
2. You want your estate details kept private. Probate is public. If your estate is subject to probate, it will be possible for others to review your will and the details of the assets you own subject to the process. If this would bother you, you may want to consider a living trust, the contents of which do not become public.
3. You own real estate in multiple jurisdictions. Real estate is generally required to be probated in the jurisdiction where it is located. Owning the property through a living trust is one way to avoid your estate being subject to multiple probates, which can become expensive.
4. You want your estate to be distributed quickly. A living trust can facilitate (but never guarantees) a quick estate administration. When your assets are administered through a living trust, the trustee isn’t subject to the same time constraints as a Personal Representative/Executor dealing with probate. However, a trustee can still encounter hang-ups or take his or her time distributing property.
5. You want easier incapacity transitions. Holding assets in a living trust is one way to manage for potential future incapacity. You can name a co-trustee or a successor trustee to assist with the management of your trust assets during your lifetime. Alternatively, those without a trust can use powers of attorney, which are also effective, but sometimes present more complicated transitions.
A lawyer experienced with estates and trusts can advise you on whether or not a living trust is suitable for you.