There are many benefits of establishing a living trust – the top one being protection from court challenges by beneficiaries. Before we discuss others, let us consider the case of David, a resident of Texas, who transferred all of his assets to his son who lived miles away in Massachusetts. David’s son, William, was a fun-loving, caring person who adored his father. William had a job and a family in Massachusetts. Still he frequently called his dad and inquired about his life and health. David trusted his son and adored his grandchildren. David developed an oral cancer only to be diagnosed at a later stage in his life. Although he was fully mentally competent to manage his own financial affairs, he decided to establish a living trust in the name of his only son, Williams. He soon found out his son’s liveliness and caring attitude was not due to his love for his father but for his assets. David soon found William was using the income from the trust for his own benefits and often neglecting medical care that David needed. Fortunately, since he had created a living trust that was revocable, David was able to revise its specifics and name a close friend and a neighbor as trustee who cared for him more than his own son.
Since living trusts are often a talk at social gatherings or at a baseball game, many people do not really know what they can and cannot do. The trust is called ‘living’ because it is created now, while you’re alive. A living trust can be revocable or irrevocable depending on what you choose it to be. A revocable trust can be amended or even revoked by you if such circumstances arise, such as in David’s case. However, an irrevocable trust cannot be altered once you’ve signed the documents. It is very important to work with a professional and reliable attorney to draft the best document tailored to your circumstances and needs.
A typical person chooses to draft a will that includes the distribution of all of their assets to beneficiaries after their death. Unfortunately, many such wills are often questioned and taken to court by the family members who may do this out of jealousy if the other person got more than them or something that they wanted. Also, when the will is proved up in probate court, the beneficiary will have an opportunity to challenge your wishes without having to hire an attorney or incur the expenses of starting a legal action. On the contrary, a living trust is harder to challenge in the court and can contain a very strong no-contest clause. You can even set up the trust to release funds or gifts to your child(s) as they reach certain milestones, such as on graduation, getting a job, establishing a career, doing something meaningful etc, hence encouraging such behaviors even if you’re not there to pat them on their back.
Before we move on to learn other advantages of a living trust let us see how a living trust works actually.
What is a living trust?
A living trust is an arrangement between a trustee and a beneficiary that allows the trustee to hold legal title of the asset(s) in the trust and make decisions for the benefit of the beneficiary.
It is called a living trust because the terms and conditions of the document take effect immediately while you are still alive. It is revocable as you can still modify the document during your lifetime whenever you want.
Advantages of a living trust
- Can be Changed as Circumstances Change
Trusts can easily be redrafted to include or exclude points that are the result of changed circumstances. This means that changes can be made with the help of an attorney without any court involvement – that would otherwise be too costly and time consuming.
- Personal privacy
As opposed to a will, a living trust is a private agreement and remains private even after your death. For instance, if a beneficiary needed to create the trust due to an inability to manage the assets due to substance abuse or cognitive disability, he/she do not need to make the rules of the trust public knowledge.
Living trusts are revocable and are in the form of contracts. Hence, they can contain any specifics according to a person’s personal circumstances. Whether you need to correct errors or include new specifics due to unforeseen circumstances, you can change it whenever you want with the help of an attorney.
- Avoid probate
If you put your assets in a trust during your lifetime instead of waiting around for an incapacity to strike first or relying on your will, you can avoid letting your assets go to probate – which is a very long and tiresome process for the already grieving beneficiaries after your death. It is very easy to do – you just need to transfer your assets from ‘David Smith’s bank account to David Smith, Trustee of ‘David Smith’s Trust’ account with the help of an experienced and reliable estate attorney.
- Efficient income distribution
Now, the Trustee will have immediate access to the assets in the trust and won’t have to wait for probate estate settlement. Hence, your beneficiaries will not have to wait for distributions.
- Less Expensive in the Long Run
A living trust is not only easy to set up but is also very easy to maintain. There are huge savings by avoiding probate.
- Your welfare
You can continue to have full control over your assets while you are still capable of doing so without jeopardizing your authority by putting them in a trust. The trustee would be able to pay your medical bills and have control of other finances in the event you become incapable of doing so. Your assets would readily be available for your benefit, in any emergency; hence you will have the peace of mind that your condition would be taken care of and your finances managed in a professional manner and diligence.
- Insights into estate planning
Establishing a living trust early on in life will help you evaluate how effective the trustee will be in managing your assets. You would also know if they would be able to provide valuable investment services to your family after you. And since it is a living trust, you would be able to revise the specifics to ensure that your expectations and wishes associated with your assets are fulfilled.
Other benefits of establishing a living trust include:
- Smooth financial management
- Uninterrupted payment of benefits in case you become disabled or incapable of managing your financial affairs
- Smooth payments without the assets going into a probate
To meet your needs and to secure your family’s financial future you can consult a professional estate attorney to devise a customized trust document for you and your trustee.