4 benefits of a living trust

Estate planning can sometimes feel overwhelming — especially if you’re thinking about creating a trust. But most trusts are less complicated than you may think and can offer you and your loved ones a variety of benefits.

A living trust is a great way to manage your assets and ensure that the people and causes you care about most are provided for. This popular estate planning tool not only gives you the power to choose how your property is handled now, but also lets you decide how it’s distributed after you pass away. Understanding the benefits of a living trust (and its potential drawbacks) can help you decide if a trust is right for your needs.

What is a living trust?

In estate planning, a living trust is a legal arrangement you can use to distribute your assets after you die. It’s called a “living” trust because you establish the trust during your lifetime.

The person who creates a living trust is called a grantor. The grantor fills (or “funds”) the trust by transferring property and assets to it. The grantor also appoints a trustee to manage the trust. Finally, they choose beneficiaries: the people or organizations who will eventually receive the trust’s assets.

There are two main types of living trusts: revocable trusts and irrevocable trusts. Revocable living trusts (RLTs) are more common and allow for greater flexibility during your lifetime. You can easily transfer assets to and from an RLT, or even cancel the trust altogether.

Irrevocable trusts are more rigid. While they can be changed, the process is often more complicated.

Benefits of a living trust

A living trust offers many advantages. With a trust, you can:

1. Avoid probate

Probate is the court-supervised legal process in which your estate is distributed according to your last will and testament. Depending on the size of your estate and where you live, the probate process can be long and expensive.

This is where a trust comes in handy. Assets in a trust can be transferred directly to your beneficiaries without going through probate — benefitting your loved ones by saving them time, money, and hassle.

2. Protect your loved ones’ privacy

The probate process makes details about your estate public, including what assets you own, their value, and who your beneficiaries are. Because trust assets don’t have to go through probate, this information remains private.

3. Have greater control and flexibility

A trust gives you greater control over how and when your assets are distributed to your beneficiaries. In your trust document, you can outline specific terms — or guidelines — for your trust, so your property is handled exactly how you want it to be after you pass away.

For example, if your minor child is your beneficiary, you might want their trust assets used for a specific purpose or occasion — like when they reach a certain age or if they go to college. This can help make sure they don’t spend their inheritance irresponsibly or all at once.

Revocable living trusts are also flexible. If your estate planning goals, circumstances, or even the people in your life change, you can easily make adjustments to your RLT. You can also make changes to an irrevocable trust in some cases, but the process is more complicated. It’s best to talk to an estate planning attorney if you have questions about your irrevocable trust.

4. Protect your assets during your lifetime

While a trust can help you plan for what happens after you die, it can also help you plan for the “what ifs'' during your lifetime, like if you fall ill or become incapacitated (meaning you’re unable to manage your trust yourself).

Your trust documents can help you plan for these unexpected situations. In them, you can provide instructions for how you want your trust managed, including whether trust funds should be used to pay for your care. This empowers your chosen successor trustee to handle not only your care, but also your estate — including distributing trust funds according to your wishes, paying your bills, and filing your taxes.

Disadvantages of a living trust

While they offer several benefits, trusts may not be the best option for everyone. You’ll want to consider certain factors when deciding whether or not a living trust is right for your situation, like:

1. Cost

A trust can be more expensive than a will, especially if you hire an estate planning attorney to create or manage your trust for you.

Depending on the type of trust you have and the state you live in, there may be other fees involved in creating and maintaining a trust, like:

• Setup fees
• Title transfer fees for real estate or vehicles
• Taxes on income generated by trust assets (like stocks or certificates of deposit)
• Paying the trustee to manage the trust
• The cost of an accountant or financial advisor

While paying your trustee or hiring a financial advisor can be optional, other costs — like title transfer fees — are often required. Talk to an estate attorney or your local court if you have questions about what fees are required in your state.

2. Ongoing management

A trust often requires more active management than a will. This is because you need to transfer any new assets you acquire to the trust throughout your lifetime.

If you don’t, those assets will have to go through the probate process before your beneficiaries can claim them. The trust may also require additional work if you move to a different state or choose to change any provisions or rewrite any terms.

While these actions aren’t difficult, they can take time and require detailed record-keeping.

3. Extra paperwork

Trust documents are fairly lengthy, as they contain important details about your trust. In addition to creating your trust documents, you’ll also need to fill out paperwork to transfer ownership of your assets to the trust. For example, say you want to transfer your house to your trust. To do this, you’d have to prepare a new deed that names the trust as the home’s owner.

Is a living trust right for you?

When it comes to estate planning, a living trust can offer many benefits to both you and your loved ones — from having your assets avoid the lengthy probate process to providing peace of mind if you become incapacitated.

Choosing to set up a trust is a personal decision based on your unique circumstances and goals. FreeWill’s revocable living trust tool can walk you through the process of making a simple trust in as little as 20 minutes.

In addition to a trust, it’s a good idea to also have a pour-over will. This helps ensure any property not included in your trust is protected and distributed according to your wishes after you pass away. Otherwise, the courts will decide what happens to any assets not transferred to a trust or included in a will according to state law. If you create your living trust using FreeWill, a pour-over will is included in your documents.