What Is A Living Trust?

what is a living trust

Living trusts are wise options for almost anyone with assets of at least $166,250 that will be distributed to heirs and beneficiaries upon their death. Many people assume that anything with the word “trust” in the title is exclusively for the wealthy. That is not the case at all.  

Many middle-class families benefit from creating a living trust, rather than a more traditional will.

Learn All About A Living Trust 

Definition of a Living Trust 

Investopedia.com defines a living trust as: 

… a legal document, or trust, created during an individual’s lifetime where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary. A living trust is designed to allow for the easy transfer of the trust creator or settlor’s assets while bypassing the often complex and expensive legal process of probate. Living trust agreements designate a trustee who holds legal possession of assets and property that flow into the trust. 

There are two types of living trusts. These are: 

  • Revocable trust. The large majority of trusts are created as revocable living trusts. This means they can be changed or canceled by the grantor(s) (the one(s) creating the living trust for his/her estate) at any time.  
  • Irrevocable trust. An irrevocable living trust cannot be changed, not even by the person or people who created it. This is why it’s less common. However, some individuals or couples opt to convert their revocable trust into an irrevocable trust later on in their life, particularly if they have a terminal illness, dementia/Alzheimer’s diagnosis, or if they are further along in their life and worry about strained family relationships that could lead to someone contesting the trust (more on that below) 

It does not require vast wealth or an accumulation of properties to establish a living trust. If you have assets of any kind, including investments, houses, property, digital assets, cars or toys, heirloom collectibles, jewelry, furnishings, etc., you might benefit from a living trust.  

Benefits of Using a Living Trust for Estate Planning 

There are several benefits to establishing a living trust for your family, loved ones, and other beneficiaries. 

It avoids the entire probate process 

Probate is the legal process that moves forward when the grantor dies, and the will is carried out via their trustee or executor. This requires quite a bit of hoopjumping and legal compliance, and can also mean paying fees and taxes from the estate.  

Living trusts, on the other hand, are set up as if all of the parties who benefit already “own” the assets. Therefore, there is no need for probate. Instead, the trusts “trustee” meets with the estate attorney and begins carrying out the trust’s instructions.  

It can save you money 

Initially, setting up a living trust will cost you more in legal fees than a simple will, because trusts are more complex. However, paying a little more to establish a living trust can mean saving the costs associated with moving through probate court. Once the trustee is carrying out the trust’s stipulations, there is really no substantial difference in income and estate tax savings between living trusts and wills.  

However, living trusts are much harder to contest. If your family is one that has tension, historical drama, or there is a competitive atmosphere around who is entitled to what from the estate, creating an irrevocable trust is the best way to minimize the chances of someone contesting the trust. When a will or trust is contested, the estate is dragged through probate court, which can take months or even years to resolve – and costs the estate substantially more in terms of legal fees. 

They are more private 

Probate court is a public court, and there are a series of things that need to happen in terms of legal notices and publications. So, while a legal will becomes part of the public record, living trusts remain private because they are handled outside of the probate process. 

That is doubly so if you own properties in other states. If a will is in place, out-of-state properties and assets have to go through the probate process in those states – in addition to your own. This also requires public recordings and publishing of information in the local papers, where living trusts are still handled privately regardless of where the properties are located. 

Some Disadvantages of Living Trusts 

There are some disadvantages to living trusts, depending on your ultimate goals. They are more complicated, which means more paperwork, processes (transferring accounts, titles, etc. to fund the trust), and they cost a bit more to establish at the outset 

Because your assets are owned by the trust (even though they are still yours to control, nobody has access to anything until after you die unless stated otherwise), it may be complicated to sell things, if there are multiple trustees. For example, if you own a home that is included in the living trust, but you decide to sell the home, you have to contact the trustee who facilitates that with the estate attorney (meaning more legal fees). 

That being said, reputable estate attorneys would never encourage you to create a living trust where a will is a better option. Or, s/he may recommend creating a living trust to protect some of your assets, leaving other assets (such as a home or car you may sell in the near future) in a spillover will.

Let Us Help With Your Estate Planning

Are you in the process of creating an estate plan? Contact Tseng Law Firm to work with experienced estate attorneys who are also real people and are happy to walk you through the options as you decide whether a living trust the best option for you and your family. (510) 835-3090.