This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Countless people work hard all their lives not only to take care of their families while they're here but also to be in a position to leave their loved ones with assets once they've passed away.
To do this effectively, it's important to consider all your estate planning options because there's no cookie-cutter approach that works for everyone.
A popular option is a living trust, which many people consider one of the better routes to take. However, is a living trust really the best way to leave an inheritance behind for your loved ones? Well, let's take a look and see.
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So, what exactly is a living trust?
A living trust is a legal setup that allows an individual or couple to specify how their assets should be distributed after they pass away. Also known as a revocable trust, it can be adjusted or revoked at any time, as long as certain events haven't already occurred to make it irrevocable -- usually the death of incapacity of the person who created the trust.
What are the benefits of a living trust?
There are generally three main benefits of using a living trust. The first and arguably most useful benefit of using a living trust is skipping the probate process. In probate, a court determines if a will is legitimate and then oversees the distribution of the assets within the will.
Although this oversight may sound ideal, it is often an expensive and lengthy process that many would prefer to avoid.
The second benefit of a living trust is the privacy it affords. Unlike a will, the details about a living trust don't become part of the public record, so only relevant parties know what's in them.
Lastly, living trusts arguably provide more flexibility for changing life circumstances. Life happens. People get married and divorced, have kids, or go through changes in their financial situation that require changing the terms of the living trust. Having the flexibility to do so is key. Changing a will can sometimes be more complicated.
What are the downsides of a living trust?
Despite the many benefits of living trusts, there are some drawbacks.
The first downside is that setting up a living trust isn't always the easiest process, and professional assistance is often encouraged to ensure it's created properly and assets are transferred properly. Anytime there's professional assistance, you can bet it comes with costs.
Once a living trust is established, it must also be maintained over the years. You may need to add new assets to the trust, remove assets, or update its terms. These processes aren't overly complicated, but they're not as simple as I imagine most people would hope.
A living trust is great but not the best option for everyone
Much of the praise for living trusts is warranted, but they aren't the best options for everyone.
Living trusts are great for people with complex estates, high-value assets, or notable individuals who benefit from the extra privacy. Using one if one or multiple of those applies makes sense and likely warrants the extra effort and costs.
However, a will could be just as effective for those with much simpler estates. They're also generally easier (and cheaper) to create and don't require the ongoing maintenance that living trusts do.
There's no right or wrong route, just the one that works best for your situation. If you are considering a living trust, consult an estate planning attorney to see if it makes sense for your situation.
