You know that there should be a legal document according to which your assets will be distributed after your death. But have you ever wondered if you want that document to be a living trust or a will?
About 20% of Americans chose to have a living trust. So should you join them?
In the end, it is about what type of estate planning you prefer. Below are five benefits of a living trust, which may help you determine if you need one.
What is a living trust?
A living trust, also known as revocable trust, is a written legal document which places your assets into a trust for your benefit while you are alive. Then, after your death, those are transferred to the nominated beneficiaries by the representative of your choice, called a successor trustee.
You will avoid probate
This the first distinction between a trust and a will.
Probate means going through sometimes costly and lengthy court proceedings to distribute a deceased person’s estate. Probate can delay distributions and cut down what beneficiaries were supposed to inherit.
With trust it is different. Because the successor trustee will distribute the assets according to your instructions without court intervention. This will significantly shorten the process.
Avoiding probate is especially crucial for those who own property in another state.
You will maintain privacy
A living trust is a private document between two parties. Unlike a will, it will not become a public record.
When a will goes through probate it enters the status of the public record. Anyone can find out about your estate distribution if they want to.
If it feels uncomfortable to realize that anyone can know what you owned and what you left others to inherit, then a living trust is a better option for you.
You will save money
Again, it mostly has to do with probate expenses. However, when it comes to initial cost getting a living trust will cost you more compared to a will. Because a trust is a more complicated document.
It has more stages because you should fund the trust with your assets, meaning transfer the ownership to your trust. You may also want to switch the beneficiaries on your life insurance or IRA or 401(k) plan. For each, you will need to file different paperwork.
A living trust can also save some money for married couples if they chose to a have a joint one.
You will get assistance in case of disability
In case you become ill or incapacitated your trustee will handle your affairs. The court will not intervene. You cannot have the same with last will. In that case, your family will have to ask the court to appoint a guardian or conservator to take care of your affairs.
You can specify in the trust documents how your mental illness should be determined. Such as by certification by your physician.
However, it is crucial to know that some living trusts do not address mental disability or offer little planning.
A living trust or a will?
Or both? First, let us clarify the difference once more. A will has no effect on your property before your death. While with a living trust, you will be able to evade probate.
However, note that when you create a trust it is nothing until you transfer your property into it. And if anything is left out, you will have to probate it.
In that case, you can have a pour-over will, that will take care of property that was not included. After your death, that property will be directed to the trust. But it still requires probate.
Also, in a will, you can appoint a guardian for your children in case you die. That is not possible with a trust. Before deciding, find out more about planning your will and trust.
If you decide that living trust is the best option for you then start planning. Which assets will you include? Who will the beneficiaries be? And most importantly, whom will you appoint as the successor trustee?
Getting a living trust is not that difficult. Search online for trust forms. So do not linger. Carefully planning your estate will give a peace of mind to you and those you love!