Why A Living Trust is Important
A living trust is a legal document that, when properly funded, holds your assets in the name of the trust rather than in your name. Depending on the type of trust you write, and how comprehensive it is, it can minimize or outright eliminate estate taxes, allow your estate to avoid probate, and smoothly pass on your estate to your beneficiaries. A living will is not a bad thing, and in many cases, it can work in conjunction with a living trust – but if there is only a living will, then your estate will go through probate. The process of probate can utterly eviscerate a well-thought out will because it can be held in contention by various heirs – even those who have been disinherited – and be left invalidated before it can even go into effect. This is because the courts and the state don’t have a vested interest in your will being upheld for the benefit of your family. For them, it is business and usual, and legality can be shaded in any number of ways that you cannot prevent, because it will only come into effect after you have died. It may not seem like a bad idea for a will to go through probate, but that is only because most do not know what probate entails, or how damaging it can be to your estate.
Probate is a legal process through which an estate is evaluated and disseminated amongst viable heirs – which may or may not be explicitly laid out by a will. This process seems simple and benign, but it is incredibly invasive. During the process of probate, your family and your estate have no privacy, as it is an open process and any party that has even a tangential interest in your estate can become entangled with the process, slowing it down. Whether these ‘interested parties’ are heirs who have been disinherited, other family members such as siblings, parents, or stepparents, friends, or even strangers are of no matter to the court. They need only prove they are an ‘interested party,’ and they can become involved in the process. You, and your heirs, will not have any control over the process, from how much it costs to how long it will last. All of those details are determined by the probate process, and it can be quite expensive. Probate is an inevitability when there is only a will in play, but it can be entirely avoided when a living trust is utilized instead. When properly set up, a living trust will protect your assets and your heirs from probate court, minimize any taxes, and dramatically speed up the process.
A living trust is a legal document that, unlike a living will, is capable of acting even while you are alive. It can include instructions on how your affairs should be handled if you are incapacitated, in conjunction with durable power of attorney, while limiting the risk that whoever has that power can abuse the position. A living trust allows you to completely avoid probate court, simply by signing your assets out of your name and under the name of your trust – by making you, or another person, the trustee. It keeps the courts out of your estate if you die or become incapacitated because, legally, your assets no longer belong to you. They belong to your trust. You do not lose control of your assets, even if you are not the trustee. This is because the most common type of living trust that a person will use is a living trust that revocable at any time. It allows you to install rules and regulations with how your assets are handled, which is an important step when another is acting as trustee while you are still alive. When setting up a trust, you simply change the name on legal documents – such as real estate or stocks. If it has a title, then it must be changed from your name to the name of the trust in order for it to be included in the trust. Simply by having a living trust, you can avoid probate court entirely, saving your family months of hassle to receive what you want them to.
However, if you were to use an irrevocable living trust, certain freedoms that come from utilizing a revocable version are set in place. This type of living trust is capable of being amended very little over your lifetime, to the point where it would be simpler to draft another trust entirely in order to make any changes. Your assets are moved out of your estate entirely, the designated beneficiaries are set and finalized, and it prevents any asset within this form of trust from being counted as your asset – discounting them for the purposes of estate taxes.
It is not an automatic process, and many make the mistake of not funding their trust after setting one up. If there is nothing in the trust, then there are no assets that are protected by the trust, essentially rendering the trust useless. Setting up a living trust is a relatively quick process, and so it is imperative that you fund it with your assets as you set it up, gain new assets, or lose assets over time. A living trust reflects your life at the moment it is drafted, as such it should be updated regularly in order to reflect your life as it evolves. During the process of setting up a trust, include a successor trustee – whether that is one person, or a list of people is entirely up to you – so that your trust can continue to act and protect your assets if something happens to you or another in the line of succession. Your successor trustee, whether that is a corporate trustee, an adult child, sibling, or other trusted person, is there to step in should you become incapacitated and need them to oversee your trust, or if you die and they are to enact your trust.
Another distinction between a living will and a living trust is that the latter does not necessarily have to end with your death. It can continue on long afterward, with instructions set in place in order to care for the trust, keeping it funded and updated, doling out assets over a set period of time, or even to stay active from one trustee to the next until it is fulfilled. However, just because there are differences between a living will and a living trust does not negate the necessity, and benefits, of a living will. Because a trust is reflective of when it is written, if it is not updated before your death, your living will can transfer ‘forgotten’ assets into your trust, though these assets may have to go through probate first. In the end, your living trust can protect your assets if it is properly tended to over time, allowing you to feel secure in the knowledge that your estate will be handled with care after your death.
