Thanks to terms like “trust fund baby,” most people think that trusts are just for rich people who have piles of cash to give away to their children. In fact, though, a living trust is a versatile and helpful estate planning tool that lots of people can benefit from.
So what is a living trust? And is it better than a simple will? In this article, we’ll talk about the distinction between these two important estate planning documents and give you an overview of the benefits of a living trust.
What Is a Living Trust, Anyway?
Before we compare wills and trusts, we should establish what a trust is. A living trust is a legal document that allows assets of your choice to be managed by a person or group of people you select. These people are known as the “trustees.”
You’ll place the assets in the trust while you’re still alive (which is why it’s called a “living” trust), but when you die, the trustees are responsible for following your instructions and distributing the assets to the person or people you want to benefit from the trust. These people are called the “beneficiaries.”
Revocable vs. Irrevocable Living Trusts
Once we start talking about living trusts, things can get complicated because there are lots of different kinds of trusts. In fact, there are so many that we can’t cover every type of trust in this article. However, we can start by explaining the differences between the two main categories of trusts: revocable and irrevocable trusts.
- A revocable living trust is a trust that you can change at any time. If you create a revocable living trust and then have second thoughts about some of the terms, that’s okay — you can change the beneficiaries of the trust, the assets in it, and the terms of the trust.
- An irrevocable living trust is a trust that can’t be changed after the documents are signed. Once you place assets into an irrevocable trust and sign the documents, you’ll no longer have control over those assets, and it will be too late if you have second thoughts about any aspect of the trust later.
At first glance, an irrevocable trust sounds like it’s a bad deal — why would anyone want a trust they can’t change when they can have one that’s much more flexible?
However, irrevocable trusts have some specific advantages. They can provide state and federal estate tax protection to the beneficiaries, and the assets you place in an irrevocable trust are also protected from creditors in the event that you get sued.
Deciding whether these benefits of an irrevocable trust might make it a good option for you can be complicated, and if you want to know more about whether an irrevocable trust will work for your specific situation, you should contact an experienced estate planning lawyer . For most people, a revocable living trust is the best option.
Wills and Trusts Work Best Together
Now that we know what a trust is, let’s get one thing out of the way: a living trust has lots of benefits over a will, but it isn’t “better than” a will. A will serves important purposes that a trust can’t, including naming a guardian for your children.
Also, a living trust can only manage and distribute the assets you’ve placed into it. Unless you’ve transferred everything you own into one or more trusts, you’ll want a will to cover the rest. So, the choice isn’t between a will or a trust — it’s between a will alone or a will plus a trust.
Often, people who have a living trust create a special type of will called a pour-over will to go with it. A pour-over will simply states that all your assets that haven’t been placed into your revocable trust should go there when you die.
If I Need a Will, Then Why Do I Need a Trust, Too?
You should have a will no matter what, but a trust has several important advantages:
- A trust lets you keep your assets out of probate. Probate is the process of settling your estate after you die, and it can be expensive, time-consuming, and stressful for your loved ones. With a living trust, you can bypass probate completely and distribute your estate to your loved ones much faster than you would with a will alone.
- A trust provides privacy. A will is a public document, and everything you put into your will becomes a matter of public record after you die. If you’d rather keep your personal and financial affairs private, a living trust can help you accomplish that.
- A trust can help you plan for mental disability. Since a living trust goes into effect while you’re still alive, it can prepare your estate and allow the trustee to take over if you become mentally incapacitated and are unable to make important decisions. In contrast, a will can only take effect when you die.
- A trust lets you stipulate what your beneficiaries can do with your assets. If you want to set aside money specifically for your child’s education or to help them start a business, a living trust can help you do that.
- A trust can address unique situations, like parents who have children with special needs. Leaving money in your will to a child with disabilities could accidentally cut them off from important public benefits. A type of living trust called a special needs trust can help solve this problem.
Although we can explain some of the potential benefits of a trust in a blog article, we can’t tell you whether a living trust is right for your situation unless we get to know you and your unique circumstances. Give us a call if you want to know more about whether a living trust makes sense for you.
Contact the Law Offices of Kari Santana for Help Creating a Will or Trust in West Michigan
Whether you’re established and have a large, complex estate or you’re young and just getting started, the experienced estate planning team at the Law Offices of Kari Santana can help you get ready for the future with our affordable estate planning services. We understand that your estate planning needs are as unique as you are, and we’ll address them with creative, custom-tailored solutions that can give you confidence and peace of mind.
To get started today, call us at (616) 717-5759 or fill out our quick and easy consultation form below.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.