A living trust appears to be like a will, in that the creator of the trust names a beneficiary of all of his or her property. However, a living trust also names a trustee that holds legal title to all of the trustor’s property on behalf of the beneficiary. The trustee must distribute the property to the beneficiary in accordance with the trustor’s wishes as laid out in the living trust itself. It sounds a lot like an executor of a will and beneficiaries of a will, right? So if you have a will, why would you want a living trust?
Living Trusts Avoid Probate
A will isn’t always the best plan for you and your family, because all wills must be probated after you die. Before the executor of the will can act on any stipulation in the will, the will must be validated by the local probate court.
Since a will can only go into effect after your death, it does not protect you, your family, or your property if you become physically or mentally incapacitated. If you only have a will and such a tragedy does befall you, the court could take control of your property and distribute it according to how the court interprets the law for your state.
A living trust avoids the court in both of these situations, and allows you to maintain control of your property no matter if you’re living or dead.
Why You Want to Avoid Probate
Probate is the legal process by which the court ensures that after your death, you debts are paid and your assets are distributed according to your will. If you don’t have a will, then the court distributes your assets in accordance with the state’s law.
Probate, like most court proceedings, can be extremely expensive. All legal fees, executor fees, court costs, etc. must be paid before your assets can be distributed to your heirs. Also like most court proceedings, probate can take a long time. The average probate case takes nine months, and during most of that time, all assets are frozen so an accurate inventory can remain in place.
The probate process also allows for disgruntled heirs to contest the will and open the case up to potentially ugly litigation.
If you can avoid probate, it’s generally recommended that you do what it takes.
Joint Ownership of Property Does Not Avoid Probate
If one owner dies, full ownership of the property does indeed transfer to the surviving owner without needing to go through the probate process. However, if that surviving owner dies before adding a new co-owner, or if both owners die simultaneously, then the property must be probated before it goes to the heirs.
Also, it makes sense to jointly own property with your spouse, but if you add a child or a parent or a friend as a co-owner to avoid probate, you’ve opened up a whole new set of potential problems. With a co-owner, you no longer have full control over the property. Your chances of being sued and/or losing the property to a creditor greatly increase at this point.
How Living Trusts Avoid Probate and Court Control When Incapacitated
A living trust transfers assets from your name to the name of your trust that you control by naming yourself and whoever else you want (spouse) as the trustees. Legally speaking, you yourself no longer own anything; your trust owns everything. But as a result, there is nothing for the courts to take control of when you die or become incapacitated. Therefore, you and your family can stay out of the court system completely.
Keep Control of Your Assets in a Living Trust
As a trustee of your own trust, you can do anything you could do before with your property, including buying and selling it. Even your tax returns remain the same. The only aspect that changes is the name on the titles.
Setting Up a Living Trust
It sounds complicated, but the process of setting up a living trust and transferring your assets to your trust is actually quite simple–especially if you have the help of an experienced estate planning attorney. It will take some time to transfer everything to your trust, but it’s best to start the process now, while you are in control or the courts can do it later when you can’t. On average, it takes about a few weeks to complete the transfer.
Don’t forget to designate a successor trustee in case something happens to you and your co-trustee. If you recover, you resume control of the trust from the successor trustee. If all trustees die, the successor trustee will distribute the trust as instructed to beneficiaries and creditors, all without having to go to court.
A Will is Still Needed
You will need a will as a safety net to catch all assets you may have missed transferring to the trust. Also, a living trust will not name any guardians for your children; you will need a will to name them.