Estate planning classically includes a will to manage your affairs after your death, and powers of attorney and advanced directives to manage your affairs in the event of your incapacity. But there's another key element that you may want to consider, the living trust.
What is a Living Trust, and how does it differ from a Will?
A will comes into play after your death to name a personal representative, direct how your property should be distributed, and indicate who should be the guardian of any minor children in the event of the death of both parents.
A living trust is a separate legal entity you set up today to manage your affairs through the naming of trustees (yourself initially) and by funding the trust appropriately throughout your lifetime. Funding refers to the correct titling of assets in the trust's name - transferring your house from yourself to yourself as trustee of your living trust - and ensuring that the trust is listed as the beneficiary of any funds, accounts, or insurance policies which should distribute to the trust upon your death.
Benefits of a Living Trust: Privacy, Incapacity, and Probate Avoidance
The terms of a living trust are administered without oversight from the court, so your affairs remain a private matter. Once a will is filed to begin a probate proceeding it becomes a public document, and anyone with the appropriate knowledge can look it up or request a copy.
See Elvis Presley's will here: http://bit.ly/ElvisPresleyWill and Heath Ledger's will here: http://bit.ly/HeatherLedgerWill
In the event of your incapacity, you will have appointed a successor trustee, ensuring a smooth transition of your assets and affairs. There is simply no way to know when an accident will happen, or when a debilitating stroke may occur, planning now for the what ifs of life can save your family from having to make difficult or uncertain decisions.
A properly funded trust also avoids probate. Probate has gotten a bad rap. It is not, by it's nature, an evil process designed to suck your life and money from you, but it can be a slippery slope. A contested probate administration can last months, if not years, and can be extremely expensive draining assets from the estate. However, if you have properly funded your trust throughout your lifetime with your most important assets (property, insurance policies, retirement and investment accounts, etc.) there will probably be no need for probate administration, thus saving your estate both time and expense down the road.
Disadvantages to a Living Trust: Current Expense and Funding
When setting up a living trust, you are setting up a separate legal entity to manage your affairs, and the conversations and time involved to make the appropriate, thoughtful considerations does not come cheap. Nor should it (*disclaimer, I'm an attorney! But stick with me here...). Your living trust is an important document that can have unintended consequences when improperly drafted. Your attorney should be a trusted advisor, one who should not only earn and deserve every penny you pay them, but should also be able to tell you when you don't need all the bells and whistles and when another option may be available and just a suitable for you.
If you are someone with low or negative net worth, a trust may not make the most sense financially for you, and there are similar planning techniques you can implement through your will, advanced directives, and other planning. Schedule a consultation now.
Furthermore, I mentioned properly funding your trust above, but what does that mean, and why can it be tricky? Let's say you have a house, an IRA account, and a living trust. Upon setting up your trust, you must first ensure that you transfer the title from you as an individual to you as the trustee of your living trust, making the trust the legal owner of your house. Then you must ensure that the beneficiary of the IRA is changed to reflect the name of the trust, assuming of course that you would like these funds to flow into your trust at your death. If either of these things are not done, you stand having to go through the probate process anyway, something you were probably trying to avoid, because you did not properly fund your trust.
Funding a living trust is an ongoing concern that must be kept in mind throughout your life as you buy and sell properties, acquire new accounts, change jobs, sign up for life insurance...you get the idea.
So, Do I Need a Living Trust or What? In Classic Attorney Fashion - it depends.
Do you have minor children?
Do you have property in multiple counties or states?
Do you want to ensure privacy of your estate?
Does incapacity seem likely?
Do you have substantial assets?
Do you want to make the decisions now so that your family does not have to make them later?
There are so many questions to consider. Reach out to a trusted advisor today to discuss whether a living trust would be beneficial to you.
I would love to assist you in your estate planning if you would like to schedule a time to meet. Schedule an appointment with me, Rebecca Easton, Esq., here.
Download estate planning questionnaires here.