When it comes to estate planning, there are many decisions to make, and among the most important is whether you should utilize a Living Trust or a simple Last Will & Testament. This may seem like a question with a straightforward answer, but there are many factors at play.
One of the most important functions of a Living Trust is to prevent your estate from going through the probate process. Depending on your state, county, family, and net worth, this can be a lengthy and costly court process that your family will have to endure if you only have a Last Will & Testament. Some wills contain trust provisions, but in order for those to come into effect, the will must go through probate. However, if your assets are in the name of a Living Trust, those assets will not have to go through probate, and they can be distributed to your family members as soon as possible.
There are several familial and asset factors that determine whether you are a likely candidate for creating a Living Trust. Contrary to popular belief, most people who utilize living trusts are not uber-wealthy. In fact, only a few people are subject to federal estate taxes every year, and most states don’t have an estate tax of their own. Trusts are more likely to be used by people on a second or third marriage, who want to avoid probate because of potential conflicts between their children and their current spouse. These conflicts are not limited to blended families, however. Those who have difficult children, or even a difficult child-in-law, can benefit from avoiding the potential pitfalls of a lengthy probate. Living Trusts are also useful to those who own property in more than one state, since probate is generally required in every state you own property in. Because assets in a Living Trust are not subject to probate, this can save years and thousands of dollars in court and attorneys’ fees.
Many people believe that their lives may become overly complicated if their assets are in a Living Trust, but with the most common type of trust, your life doesn’t really change. You can buy, sell, or spend assets as you please, you don’t need a separate tax ID, and you can even keep your Homestead Exemption. Living Trusts are designed to hold your assets while you are alive, they are more complicated documents, and are thus more expensive to create. While this cost may seem prohibitive to some, it is crucial to factor in the potential time and money that could be wasted when you pass away, and when your spouse passes away. It is important to have a Last Will & Testament as part of your estate plan, but you might want to consider a Living Trust if you would prefer to keep your estate out of probate court.