Everyone should have legal instructions to leave behind in the event of their death. For most people that means having a will, but some people should consider having a living trust. A will is a piece of paper that tells a court what to do with your assets, while a living trust is a legal entity that controls your assets after you die.
Here are three reasons why it may be helpful to have a living trust:
When you want to avoid probate court.
Living trusts avoid probate, which is a judicial process that many assets included in wills must go through.
There are a lot of good reasons to want to avoid putting your heirs through probate. It’s a lengthy legal process that can delay their inheritance for several months or longer. It can be expensive and your state may charge fees based on a percentage of the assets you leave behind. Probate proceedings also create public records that anyone can view, so you’ll sacrifice some privacy. And, if you own property in multiple states, there will be a separate probate process carried out for each state, which can be a hassle.
Assets in a living trust avoid probate court altogether. When you pass away, control of the trust transfers to a person you choose, whether a relative or a paid professional trustee. They are tasked with managing the trust’s assets according to the instructions you leave behind.
When you have heirs with special needs.
A trust can provide ongoing financial management for an heir with special needs who may never be able to manage their affairs themselves. Your heir may also lose eligibility for some forms of government assistance if they are granted their inheritance outright through a will. A living trust could avoid that situation.
When you want to put ongoing conditions on an inheritance.
While a will generally just simply distributes assets immediately after your death, a trustee can be given detailed instructions on how to handle the assets over the course of many years. You could, for example, instruct that an inheritance is doled out in thirds every 10 years. Or, you could make an heir’s access to inheritance funds dependent on them avoiding legal trouble or substance abuse.
Be aware of downsides
Creating a living trust is more expensive, likely costing a few thousand dollars rather than the few hundred to create a will. It creates a legal entity that must be managed while you are alive. A trust also only controls assets that have been placed into it, so assets outside the trust after your death won’t avoid the probate process. Most importantly, you must have a trustee you can rely on to transfer the trust to. How the instructions you leave behind are handled will be largely up to that person.
A living trust isn’t for everyone, but it’s something you may want to consider, with the advice of an attorney.