Should I Have a Living Trust?
One of the biggest confusions that people have when they sit down to look at a will and estate plan is whether they should incorporate a living trust (also known as an inter vivos trust or revocable trust) into their estate. Many attorneys suggest a living trust for almost every estate planning client. While there are perks to a living trust, the answer, like most issues in the law, is a bit more nuanced.
The basic notion behind a living trust is that you (or you and your significant other) create a separate legal entity, the trust, which owns everything you own. During your lifetimes, you and your partner are both the trustees and beneficiaries. This means that you are essentially free to use everything in the trust as if you owned it. At the time of your death, the beneficiaries will then change according to the terms of your trust. The same is for the trustees who will oversee the management of your property. All of this will happen automatically at the time of your death. There is no need for your estate to go through the probate court.
Essentially, going through the process above gives your estate plan several major perks:
- The use of a trust avoids most probate proceedings. This perk has been minimized in Minnesota because Minnesota law allows a will to request informal probate;
- In most cases, a trust is completely private. Unlike the use of will, which becomes a part of the public record;
- A living trust is hugely beneficial in the case of a disability. In many cases, it can be administered to qualify as a supplemental needs trust to ensure that you are not disqualified from state or federal entitlement due to income restrictions; and
- In some cases, a revocable trust is accepted more readily than a durable power of attorney. Furthermore, you can outline more specific rights for the trustee in a trust agreement than for an attorney-in-fact on a durable power of attorney.
These are pretty major perks. However, these are offset by a couple of considerations that you should make before deciding that a living trust is the solution to all of your estate planning issues.
The first thing to consider is the cost of getting a living trust. A living trust is a complicated document. You should never draft a living trust yourself. In other words, have an attorney draft and design your trust. I cannot emphasize this enough. With the complication, comes extra cost at the time of drafting your will and estate plan. In some instances the extra cost is worth it, in some instances it is not.
The other thing to consider is the ongoing maintenance of the trust. This is the biggest reason that I encourage clients to think about whether they really want a living trust. Creating a trust requires transferring all of your assets into the trust. This means recording a deed transfer with the county, and transferring ownership of all stocks and investments. It may also require updating your 401k’s, IRA’s, and insurance designations.
Even after the initial transfer, you will have to make sure that any newly acquired property is transferred to your trust in a timely matter. Management of a trust will also require separate bank accounts and separate tax filings. If you do not feel you are able to manage the extra paperwork, or cannot afford to hire a professional to manage the trust, a living trust may not be the choice for you.
If a trust does seem like the best route, but it would be unmanageable during your lifetime, don’t worry. There are many types of trust that can be created at the time of your death. These are called testamentary trusts. Under many circumstances, a testamentary trust may even be preferable to a living trust.
A last thing to keep in mind is that having a living trust does not mean that you do not need a will. A living trust works with a good will, not in place of one. Both are just parts of an overall estate plan. Working with a good attorney can make sure that all of these parts work perfectly together.