For most people, a will is the first choice when passing on an estate to heirs. However, a will is not the only choice. Among other estate planning tools, living trusts have become popular. Not only are living trusts a way to avoid probate (the legal process to determine whether a will is valid) living trusts may offer other advantages. Below are some frequently asked questions to help you decide whether to consider a living trust.

What is a living trust?

With a revocable living trust, you transfer ownership of assets of your choice to a trust while you’re alive. The trustee then administers the trust according to the terms. It is called “revocable” because as long as you are mentally able, you can make changes to dissolve the trust at any time. You can keep any - or all - of the income from the trust, act as the trustee, change the provisions, or even terminate the trust.

However, once you die, a successor trustee will take over and the trust then becomes irrevocable (no further changes can be made). The trust can continue to exist or be terminated, with the assets distributed to heirs or to another trust.

Advantages:

• Trust assets will be distributed to your heirs without going through the probate process. Typically speeding up the receipt of your heir’s inheritances and avoiding probate costs.
• You can name a successor trustee to take over the trust’s management if you become mentally or physically disabled. This is usually less expensive and less cumbersome than having the court appoint a conservator.
• By placing assets in the trust that require immediate management, such as a business, your successor trustee can immediately take over management of those assets after your death or disability.
• Since the trust’s provisions are not subject to court review, it is usually more difficult for heirs to contest a living trust’s terms than to contest a will.
• If you own property in more than one state by placing this in a living trust you can bypass the multiple-state probate process.

Disadvantages:

• Things like insurance proceeds, retirement accounts, and jointly owned property automatically passes to your beneficiaries. Depending on the assets you own, you may not need a living trust to avoid probate.
• Once you set up the trust, it must be funded by re-titling assets in the trust’s name. This can be time consuming and require a significant amount of paperwork.
• There is a limited time after your death that creditors have to make claims against an estate in probate. Without probate (as is true when using living trusts) there is no cut off and claims by creditors can be made at any time.

Will a living trust help me to save estate taxes?

Many people think that a living trust can help to reduce estate taxes, however this is not the case. However, you can make provisions in your living trust to take advantage of your federal estate tax exemption and you can set up other trusts that help reduce estate taxes.

Do I need a will if I have a living trust in place?

In most cases, you still want a pour-over will that covers the disposition of any assets you didn’t previously put into the trust. If you have children under 18 you will need to make a guardian for them in this document as well.

Do all of my assets have to be placed in a living trust?

You can decide which assets should be placed in the trust. Assets with beneficiary designations, such as life insurance, individual retirement accounts, and retirement plans generally are not transferred to the living trust, although the trust can be named as beneficiary.

A living trust is not right for everyone. For help weighing the advantages and disadvantages to a living trust, contact any member of our Private Client Service Group.