Three Advantages of Having a Living Trust

In recent decades, living trusts have become an increasingly popular estate planning tool. What is a living trust, and why are so many people turning to these trusts to manage and distribute their assets? In this blog post, we’ll give some background on living trusts and discuss some of the primary advantages of incorporating a living trust into your estate plan.

What is a Living Trust?

A living trust, also called a “revocable living trust,” is a legal arrangement that lets you transfer property into a separate entity, the trust. There are three parties to a trust: the grantor (also called the settlor or trustmaker), who creates the trust and funds the trust with assets. The trustee manages the assets in the trust. The trustee also makes distributions from the trust to the beneficiaries. As the name suggests, beneficiaries are the people the trust is intended to benefit.

During the grantor’s lifetime, they typically also serve as both the trustee and the beneficiary. The trust document names a successor trustee to take over management on the grantor’s death or incapacity, and remainder beneficiaries who will benefit from the trust after the grantor’s death.

Because the grantor is typically also the trustee and beneficiary of the trust, they can use, enjoy, and transfer trust assets just as if those assets were in their sole name. They can also revoke the trust altogether if they wish (hence the adjective “revocable”). So why bother creating a trust at all? Well, the advantages of having a living trust become much more apparent when the grantor dies or becomes too incapacitated to manage their own affairs.

Benefits of a Living Trust

Not everyone needs a living trust, but many people can benefit from one. And while, in the scenario above, we referred to a single grantor/trustee/beneficiary, it is common for couples to create, manage, and benefit from a joint living trust.

Why do people choose to create a living trust? Here are some of the most common reasons.

Probate Avoidance

Possibly the most common reason people use a revocable living trust for estate planning is to avoid probate. Probate is the court process of settling a deceased person’s estate. The larger and more complex an estate is, the longer and more complicated the probate process tends to be. A personal representative needs to be appointed to manage the estate, and that person needs to identify, secure, and inventory estate assets. The personal representative must also notify heirs, pay the estate’s taxes, pay legitimate debts of the estate, and distribute remaining assets according to the will or state law. Having the help of an experienced probate attorney makes it easier, but administering an estate can still be a lengthy and challenging process that many people would prefer to avoid, if possible.

Any assets owned in the sole name of the deceased must go through probate, including assets left in a last will and testament. Many people think that having a will avoids probate, but that belief is mistaken. However, assets left to beneficiaries via a trust DO avoid probate, because those assets are in the name of the trust, not the name of the deceased.

Upon the death of the grantor/trustee, the successor trustee named in the trust instrument “steps into the shoes” of the grantor/trustee and can seamlessly continue to administer the trust according to the terms of the trust document. Generally, no court involvement is required, and there is no delay in the successor trustee’s assumption of their role. Depending on the terms of the trust, the successor trustee may continue to manage the assets for years, or may immediately distribute them to the beneficiaries and wind down the trust.

Control and Flexibility

Many people create an estate plan to provide for their children or grandchildren. But they may not have thought through the practicalities involved. For instance, if you leave assets to your children in your will, so long as they are eighteen or older, they are entitled to receive their full inheritance upon your death. Depending on their age and maturity at that time, it could be fine—or a total disaster. More than one young adult has received a large inheritance that they were unprepared to manage responsibly.

With a living trust, by contrast, you can arrange for the successor trustee to manage beneficiaries’ assets until they are equipped to do so themselves. In the meantime, the trustee can make distributions for things like education, medical treatment, and living expenses. That ensures that the money you leave for your child provides for their needs and is not wasted.

In addition to giving you control over how and when your beneficiaries receive their inheritance, a trust provides you with flexibility. It is relatively easy to add assets to the trust, transfer them out of the trust, and to change your successor trustee or add or remove beneficiaries.

Prevent the Need for Guardianship

If you have minor children, it may be even more important for you to have a living trust. If you and your child’s other parent were to die before your child was a legal adult, the probate court would need to appoint a guardian of the estate to look after the child’s inherited assets. That person might be someone you would not have chosen. However, if you have a living trust, your hand-picked successor trustee can continue to manage your child’s assets until they are capable of doing so themselves, from both a legal and practical standpoint.

What’s more, having a living trust doesn’t just prevent the need for a guardianship for your child. If you were to become legally incapacitated, such as due to dementia, you might need someone to manage your assets. With a living trust, your successor trustee can do so. There is no need for your family to go to court to get a guardian of the estate appointed, and possibly to fight over who that person should be.

In other words, having a living trust doesn’t just provide peace of mind about what will happen after you’re gone; it allows you to be confident that your assets will be properly managed during your life, even if you’re unable to do it.

To learn more about these and other advantages of living trusts, contact the Law Offices of Dana M. Kyle, P.A. to schedule a consultation.