There are folks who are willing to sell a living trust to anything that moves. They frequently claim that everybody needs a living trust or two. Well, almost everybody. At the other extreme, there are those claiming that (almost) nobody needs living trusts.
No wonder many of you are confused. So, do you really need a living trust?
A living trust is just one of many different tools in financial and estate planning. But, living trusts can help you achieve goals not possible with other planning tools. At the same time, they require effort, time and resources.
Living trusts can serve you well while you are alive. They can also serve your family members and others you love long after you are gone. Just like with a will, you can provide for distribution of property after death.
Property held in living trusts avoids probate. This alone makes them very attractive. Probate is a legal process. It takes place in probate courts. In some states these courts are also known by other names, such as surrogate.
You and your property may be subjected to probate proceedings even if you are still alive. This may occur if you become physically and/or mentally incapacitated. In this situation, living trust (along with other documents) can help you avoid a potential nightmare.
Probate can be a very expensive and time-consuming procedure. By the time its over, a significant part of your estate may evaporate.
At the same time, living trusts are not the only way to avoid probate. If probate avoidance is your primary (or only) goal, you should at least consider other options. Such option may be less costly and time consuming.
If you own substantial assets or reasonably expect to do so in the future, you should at least consider a revocable living trust. Such trusts do not diminish the control you have over your property. They can be amended or even terminated. You can continue using your property the same way.
By contrast, irrevocable living trusts mean a loss of control over your assets. Once these trusts are executed, all provisions become fixed. You won't be able to change or terminate your irrevocable trust. Why would anyone want to give away the control over assets?
Well, irrevocable trusts can come with benefits. Your children, grandchildren (and others) can receive much more in the event of your death. Properly designed and drafted irrevocable living trusts can result in substantial income, estate and gift tax savings. They can also provide an additional layer of protection against creditors.
Testamentary trusts take effect after death. They are provided for in a last will and testament (a will). The advantage here is that no additional paperwork or actions are necessary during lifetime. In other words, you avoid extra headaches.
A big drawback is that a will must be probated for testamentary trusts to take effect. Wills can be lost and even intentionally destroyed. In addition, your will may be invalidated by the probate court in part or in full. In short, your testamentary trust may never come into existence.
Once again do you really need a living trust? At the end, it boils down to what you want to achieve during life and after you are gone. Living trusts can help you accomplish things not possible otherwise. But, there are also many other financial and estate planning tools available to you.
Decide what you really want, examine all available options and make your decision accordingly.
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