One of the most Googled topics related to estate planning is, “What is a living trust?” Today, we’ll explore what it is, why you might need it, and its benefits and disadvantages. A living trust, also known as a revocable living trust, is a legal document or agreement between multiple parties: the person setting it up (called the settlor or grantor), the trustee (responsible for managing and administering the trust assets), and the beneficiaries (who benefit from the trust).
When someone passes away, any assets in their individual name must go through the probate process—a court-supervised legal procedure where a judge reviews your will (if you have one), inventories your assets, and appoints an executor or administrator to manage your estate. Probate is often costly, time-consuming, and public, with the potential for frozen assets and contentious disputes. Many people aim to avoid this process by transferring assets out of their individual name before death, commonly achieved using a living trust.
A living trust allows you to transfer ownership of your assets to the trust while retaining control as the trustee and maintaining the ability to use and benefit from those assets as the beneficiary. This structure changes the legal ownership of the assets but not their use, ensuring continuity and avoiding probate. For most people, this straightforward adjustment is enough to bypass the costly and complex probate process.
While a living trust is highly effective in avoiding probate, it doesn’t eliminate the need for a will. A will is still essential for appointing an executor who can manage final tax returns, handle disputes, or pursue legal action on behalf of your estate if necessary. For instance, if you were to pass away due to an accident caused by someone else’s negligence, your executor would be the one with the legal authority to file a lawsuit or manage the legalities of your estate. Without a will, your family would need to go through an additional legal process to appoint a representative, resulting in more time and expense.
In summary, a living trust avoids probate, but you still need a will to ensure a complete and efficient estate plan. While setting up a living trust requires initial effort, such as transferring assets into the trust, the long-term benefits far outweigh the upfront work. To fully protect your legacy and ease the burden on your loved ones, it’s advisable to have both a living trust and a last will and testament.