A living trust is one you create while you are alive. Although
living trusts have become a popular tool in estate planning, they
are not right for all situations.
A living trust is one you create while you are alive. Although living trusts have become a popular tool in estate planning, they are not right for all situations.
One of the most common reasons for setting up a living trust is to avoid the probate process when you die. Probate for a large estate can be expensive. In addition, the probate process can be lengthy, especially if you own property in more than one state.
Probate is also open to public scrutiny. With a living trust, you can avoid the publicity, administrative expenses and delays associated with the probate process. However, for small or uncomplicated estates, a living trust may not be the best option.
Another benefit of a living trust is that it allows you to transfer control of your assets to a trustee if you become incapacitated and unable to manage your own affairs. Be aware that a durable power of attorney may accomplish the same thing.
A living trust can be either revocable or irrevocable. With a revocable trust, you can change its provisions or revoke the trust at any time. With an irrevocable trust, you give up control of the trust assets, and you cannot change the trust’s provisions. An irrevocable trust presents income and estate tax-saving opportunities that a revocable trust does not.
It can be expensive to set up a living trust, but the costs may be less than probate costs for larger estates. With a living trust, you identify the assets you want included in the trust and then retitle those assets to the trust. Trust assets escape probate.
A living trust does not replace the need for a will. You can’t use the trust to name guardians for minor children, nor will the trust take care of distribution of any property not included in it.
Do not attempt to establish a living trust without full consideration of the advantages and disadvantages. Seek the assistance of financial and legal advisors knowledgeable about your situation.
Doug Herring is a CPA with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.