The Benefits of a Living Trust
As your net worth increases, you may want to provide your loved ones with ongoing financial support. For some families, a living trust can be an efficient way to achieve this objective. In this article, we’re sharing the primary benefits of a living trust, particularly when it comes to streamlining your estate plan.
What Is a Trust?
A trust is a legal arrangement between at least two people: a grantor and one or more trustees. The grantor transfers assets to the trust, which the trustee administers for the benefit of one or more beneficiaries. A trustee can be a financial institution, an advisor, or a friend or family member.
Although there are many types of trusts, the most common is a living trust--and more specifically, a revocable living trust. In fact, about 20 percent of Americans have living trusts, according to HG.org. Once a grantor creates a revocable living trust, it goes into effect immediately. In addition, the grantor can modify or revoke the trust completely during their lifetime.
The primary benefit of a living trust is that it avoids the probate process. Probate court is where the deceased’s last will and testament is authenticated (if they have one), and their estate’s assets are located, valued, and distributed. Since there are a number of disadvantages to going through probate court proceedings, sidestepping this process altogether has its benefits. However, there are other benefits of a living trust worth considering.
Living Trust Benefit #1: More Personal Privacy
Most states require whoever is in possession of a deceased person’s will to promptly file it with the local probate court--whether or not there will be probate proceedings. Once someone files a will, it’s a matter of public record. Meaning, anyone who is curious can see it. Since a living trust never needs to be filed with a court, it provides an additional layer of privacy.
That said, some aspects of a living trust can't be kept private, such as real estate ownership. In addition, if someone contests a living trust in court, the details of the trust become public record. Furthermore, some states require that the full terms of a trust be disclosed to beneficiaries--and in some cases, close relatives--upon the grantor’s death.
Living Trust Benefit #2: Fewer Delays in Distributing Assets
If your estate is particularly complex, probate proceedings can take months, or even years. One of the benefits of a living trust is that your beneficiaries may not experience such significant delays in the distribution of your assets when you die.
Moreover, while it’s rare for someone to challenge a living trust, it does happen. However, a trust is generally more difficult than a will to successfully attack in court. This is often the case because the grantor has ongoing involvement with the trust after its creation. As such, many courts see this as evidence that the grantor was competent to manage their affairs.
Living Trust Benefit #3: Potential for Lower Estate Settlement Costs
The cost of settling a living trust is typically less than settling an estate in probate court. Nevertheless, it’s important to note that a living trust is subject to a number of legal and administrative fees. So, while a living trust can reduce the overall cost of settling an estate, the savings may not be significant. This is why it’s important to consult with an estate planning expert to determine if a living trust is your best option.
Living Trust Benefit #4: Fiduciary Oversight
While a living trust can indeed be an effective way to carry out your end-of-life wishes, it can also be helpful during your lifetime if you become ill or incapacitated. Specifically, a living trust can help you avoid conservatorship. Instead, you can name a successor trustee, who must manage your entrusted assets as outlined in the trust documents.
Without legal documentation, family members must go to court to get authority over the incapacitated person’s finances and medical care. Oftentimes, this is an emotional--not to mention, public--process. In addition, the person who’s named conservator may not act in your best interest. A successor trustee, on the other hand, must act in a fiduciary capacity--a meaningful distinction.
Is a Trust Right for You?
A living trust isn’t right for everyone. However, in many cases a trust can provide you with peace of mind that your assets are protected and distributed according to your wishes--both during your lifetime and after. You should consult with a financial advisor or estate planning attorney to determine if a living trust is the best way to accomplish your objectives. If you’d like to learn more about the benefits of a living trust, please contact us. We’d be happy to help.
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Investment advisory services provided by Lantz Financial, LLC, an SEC registered investment adviser.
Non-investment topics discussed are for informational purposes only and should not be considered legal, tax or cybersecurity advice. Individuals should consult with their own legal, tax or cybersecurity expert concerning their own specific situation.
