Many people hope to eventually pass an inheritance on to their loved ones. There's something about being able to provide for those you care about, even after passing away, that can provide a bit of comfort.
The downside, however, is this process isn't always straightforward as there are multiple ways to go about it. Many people are familiar with wills, but there are other means of passing on an inheritance, such as a living trust. The living trust route may not make sense for everyone, but it does have key benefits that shouldn't be overlooked.
For those in the process of estate planning, here are three reasons to consider a living trust.
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1. You can avoid the probate process that many dread
One of the main reasons for using a living trust is to avoid probate. Probate is a court process that determines a will's validity and oversees the distribution of the deceased person's assets. Although having legal oversight during the distribution process can be good for ensuring fairness, the cons of probate can sometimes outweigh the pros.
The probate process can be time-consuming, taking months or sometimes years to complete. Your beneficiaries likely won't have access to the assets you've designated for them during this time, either. The next issue with probate is how costly it can be. Lawyer fees, court costs, and various expenses can chip away at the inheritance.
For example, in California, probate attorney fees and executor commissions are based on the gross value of the estate as follows:
- 4% on the first $100,000
- 3% on the next $100,000
- 2% on the next $800,000
- 1% on the next $9 million
- 0.5% on the next $15 million
- A court-decided amount for any estate valued over $25 million
A living trust can help you steer clear of probate because the person doesn't own the assets within the trust. When you pass away, the assets in the trust can generally be distributed to your beneficiaries without court intervention or oversight, which should save them time and money.
2. Living trusts afford you more privacy
Unfortunately, the passing on of an inheritance can sometimes become contentious. This is especially true regarding a will because it becomes a public document accessible by anyone when it goes through the probate process. At that point, anyone can get information about assets left in the will, their value, and who the beneficiaries were.
Imagine you plan to leave a six- or seven-figure inheritance to a child or grandchild who may not be financially savvy or mature. Having this information public could make them susceptible to financial predators or create bad blood with family members or friends who feel entitled to a piece of the inheritance.
A living trust affords you a level of privacy that could help your loved ones avoid those situations because details about the assets and their recipients are no longer part of the public record.
3. More flexibility allows for adjustments to changing life circumstances
Sometimes known as a revocable trust, a living trust offers the advantage of being amendable or revocable while the creator is still living (hence the name). This flexibility is crucial because life happens, and situations change constantly. People get divorced, married, have additional children, or experience drastic changes to their financial lives.
Luckily, adjusting a living trust is typically straightforward. Minor modifications like adding a new beneficiary can usually be made with a simple amendment. More comprehensive changes, such as reworking the entire asset distribution scheme, might require a full restatement of the trust. Either way, being able to update your living trust ensures it accurately represents your current desires and situation.
You also have the option to transition your revocable trust into an irrevocable one, often for purposes related to tax planning or asset protection. This transformation locks in the trust's terms and may limit or relinquish your control over the included assets. This process isn't for everyone, but it once again highlights the flexibility of living trusts overall.
