Estate planning is one of the most responsible things that you can do to make sure that your loved ones are taken care of after your passing. One of the most effective tools that can be a part of your estate plan is a living trust. Understanding what a living trust is and how to properly utilize one can ensure that your estate plan meets your own expectations and the needs of your beneficiaries.
What Is a Living Trust?
A living trust is a legal document created during an individual’s lifetime that names one person (who is referred to as the trustee) who will be responsible for managing that individual’s assets for the person who has been named as the beneficiary. The purpose of a living trust is simple: it circumvents the lengthy (and often expensive) probate process that many estates must go through before assets can be dispersed. The trust itself is simply the document that contains the name of the trustee, the beneficiary, and the asset that is being transferred from the trust creator (also referred to as a grantor) to the beneficiary through the trustee.
Benefits of a Living Trust
The primary benefit of a living trust is that it helps avoid the probate process. When assets are not clearly bequeathed in a written estate plan, the potential for the entire estate to get tied up in probate is high. Not only is probate incredibly expensive, often greatly reducing the overall value of the estate, but it can also take months, or even years, in some cases.
Additionally, a living trust can help protect you from illness and incapacitation. In the event that you become physically or mentally unable to manage your own estate, the person named as the trustee in the living trust can manage your assets without the involvement of the court. Finally, the biggest reason to consider a living trust is found in the peace of mind that they provide. Knowing that all of your assets are going to be handled the way that you want allows you to simply enjoy them during your lifetime while knowing that your loved ones will enjoy them after.
Disadvantages of a Living Trust
The disadvantages of a living trust are minimal and generally revolve around some minor inconveniences. For instance, there is a great deal of paperwork that must be filled out and gathered to create a living trust. For instance, real estate that is put into a living trust must be accompanied by a title that solidifies the ownership of the property.
Speaking of real estate that is put into a trust, some states require transfer taxes to be paid on any property that is transferred to a new owner. It can also be difficult to refinance property once the property has been put into the name of a trustee. Some lenders simply refuse to refinance property that is in a trustee’s name, while others require a lot of verification before doing so.
Fees Associated with a Living Trust
Different attorneys charge different amounts for their living trust services. The national average for a living trust created with an attorney is anywhere between $1,200 and $2,000. However, you can purchase software to create your own living trust that costs less than $100. You will also need to pay any notary fees required to legalize a living trust that you make on your own.
Living trusts are an effective tool that ensures that your beneficiaries receive the assets that you want to leave them. They also help protect your estate from costly probate courts that can tie up your assets for months or even years.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.