A living trust is a popular consideration in many estate strategy conversations, but its appropriateness will depend upon your individual needs and objectives.
What is a living trust?
A living trust is created while you are alive and funded with the assets you choose to transfer into it. The trustee (typically you) has full power to manage these assets.1
A living trust will also designate a beneficiary, or beneficiaries, much like a will, to whom the assets are structured to automatically pass upon your death.
If you create a revocable living trust, you may change the terms of the trust, the trustee, and the beneficiaries at any time. You can also terminate the trust altogether.
Why create a living trust?
The living trust offers a number of potential benefits, including:
- Avoid Probate—Assets are designed to transfer outside the probate process, providing a seamless and private transfer of assets.
- Manage Your Affairs—A living trust can be a mechanism for caring for you and your property in the event of your physical or mental disability, provided you have adequately funded it and named a trustworthy trustee or alternative trustee.
- Ease and Simplicity—It is a simple matter for a qualified lawyer to create a living trust tailored to your specific objectives. Should circumstances change, it is also a straightforward task to change the trust’s provisions.
- Avoid Will Contests—Assets passing via a living trust may be less susceptible to the sort of challenge you might see with a will transfer.
The drawbacks of a living trust
Living trusts are not an estate panacea. They won’t accomplish some potentially important objectives, including:
- A living trust is not designed to protect assets from creditors. It is also considered a “countable resource” when determining your Medicaid eligibility.2
- There is a cost associated with setting up a revocable living trust.
- Not all assets are easily transferred to a living trust. For example, if you transfer ownership of a car, you may have difficulty obtaining insurance, since you are no longer the owner.
- A living trust is not a mechanism to save on taxes, now or at your death.2