What Is A Living Trust and When Do I Need One?

What Is A Living Trust and When Do I Need One?

Mar 21, 2013

Some financial planners say that everyone needs a living trust. Other planners will say that you just need a last will and testament (will) to handle your estate. Whether you use a living trust or a will to carry out your final wishes, it is critical that you consult with an attorney who will draft the living trust and/or will. Estate laws and probate proceedings differ from state to state, and you will want to be sure that your living trust or will conforms to the laws of the state of your residence.

The purpose for this discussion is NOT to provide you with legal advice or tell you how to create a living trust or will. My purpose is to acquaint you with the options available and encourage you to complete an estate plan.

A trust is created when one person transfers property interests to be held for the benefit of herself/himself and others. A trust that is created and effective during a person’s lifetime is a living trust. A trust that is created in a will is known as a testamentary trust and becomes effective at death. Both a living trust and a testamentary trust can accomplish the same thing, it’s just a matter of timing when they go into effect.

Here are some reasons to have a living trust:

  1. You desire privacy. In most states an inventory of assets and the will become a matter of public record. Assets held in a trust are not subject to probate administration and are not open to the public.
  2. You want successor management. All trusts name a successor trustee. If the grantor/trustee becomes disabled, incompetent, or just wants to be relieved of the burden of managing assets, the successor trustee (stated in the living trust) can step in and take over. Generally, the successor trustee is a professional manager or family member with the skills necessary to handle the duties.

  3. You anticipate that your will is likely to be challenged. In practice, a trust is much more difficult to challenge than a will. A trust can be used to avoid fights within unconventional families where there are multiple marriages resulting in step families or unmarried companions and other non-traditional family situations.

  4. You own property in other states. If you own real estate in another state an additional probate process will need to be completed in that state, unless the property is owned by the living trust.

  5. You have a business or farm. A change in ownership of the business could cause an unnecessary disturbance to the business during and after the probate process. A living trust could provide for management continuity and a smooth transition.

  6. You have minor children or an adult special needs child or grandchild. A living trust or testamentary trust will need to be established to hold and manage assets for the benefit of the minor or special needs person. You don’t want them to risk losing benefits because they inherited assets directly.

Reasons you may not need a living trust:

  1. Costs for establishing a living trust can be substantial. Generally attorney fees for establishing a living trust are greater than the costs for a new will with a testamentary trust.

  2. It can be a lot of work and you can incur costs re-titling your assets to the trust. You will need to execute a new deed for your real estate. You will need to change the title of your bank and brokerage accounts. Assignments of interests in businesses, notes, and certain personal property will need to be executed.

  3. Your primary assets are life insurance and pension plans that have a named beneficiary or bank accounts and real estate that have joint tenants. If all of your assets would bypass the probate process you don’t need a living trust.

An online survey in 2012 revealed the 55% of adults in the U.S. do not have a will or a living trust. If you are one of these millions without a plan, get to an attorney and get a will or living trust completed in 2013. Don’t leave your loved ones depending on state laws and the court system to sort through your affairs.

Category: Estate Planning

Julie Cole


CFP®, FLMI, Annuity Product Manager

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