One of the most common questions I hear when people are discussing planning their estate is, “Should I have a living trust?” My short answer to you is, “Yes.” In general, but not always, the approach for people who own their home and have some is investments is, “Yes.” I will explain why, but first let’s look at the two other ways to leave the estate.
- The property passes by will.
- The property passes by its title terms, for example if the home is in joint tenancy, it passes to the surviving joint tenant, if any.
- The property passes without any kind of planning according to the default plan enacted by the state legislature
All three of those choices have a cost and inconvenience that the living trust does not have. When the death occurs, the heirs must generally go to a lawyer to get things settled. The Lawyer draws up papers and goes to court to get the court to issue a judgment saying who gets the property. Which I say is true even of Joint tenancy property, since upon the death of the second joint tenant there is no plan at all unless the survivor had put into effect a will or a living trust.
So what is a living trust besides a document with a weird name? A trustee is a trusted person or a bank that is entrusted with the property and at the death of the one who sets it up, the grantor, gives the property to the loved ones designated in the owner’s instructions to the trustee. A trust is simply the name for the existence of that written arrangement between the grantor and the trustee about what is to happen to the grantor’s property. The trust we are talking about is a living trust because the grantor sets it up while still alive, hence “living trust.” That distinguishes it from a trust that is ordered to be set up in the will of someone, a “testamentary trust.”
We have used living trusts in the English common law since the time of the crusades. It is safe to say that the law is well settled and clear. It is a safe bet. For example, we know that the trustee has to perform as the trust instrument directs and not take the property away from the heirs. We also know that the trustee must give the financial information about the trust to any beneficiary who asks. These features of the law help to keep the trustee honest and working for the good of the beneficiaries of the trust.
I have a living trust for my estate settlement. The trustee while I am alive is me. I just hold the major assets, like my home as trustee for my living trust. During my life I am the beneficiary of my living trust so I can use my funds as I wish while I am alive. When I die, my trust document says who the successor trustee is. That person takes over and runs and settles my estate. There is no need to go to court. It is all handled informally unless a problem comes up.
The big advantage is that there is little need for a lawyer to help settle the estate. One saves sometimes thousands in attorney fees. The big advantage is that involving the lawyer at the first to set up the trust and to transfer the property into it for a smaller fee saves bigger dollars in the end. A will or a death without a living trust would require several trips to court and higher legal fees. It’s a win-win.