Scenario: I hear all these people talking about living trusts and how I need that to avoid costly probate. Is that all true?

What is a Trust?

A living trust is a legal arrangement where one party, known as the trustee, holds and manages assets on behalf of another party, called the beneficiary. Living trusts are established by a trustor, who transfers their assets into the trust. The trustee then manages these assets according to the trustor's instructions, which are outlined in the trust document. Trusts can be revocable, meaning they can be altered or terminated during the trustor's lifetime, or irrevocable, meaning they cannot be changed once established.

The Difference Between a Trust and a Will

One of the primary differences between a living trust and a will is how they impact the settling of your estate. If you have a will, you must go through probate, which is a process of having the will recognized by the court and having an executor formally appointed. In the majority of cases, this is a very simple, pro forma process that can be accomplished in several days after the person dies. The cost is minimal as well. The horror stories you hear about probate taking years to complete and costing thousands of dollars in legal fees are usually due to the will being contested or conflict in the family. A living trust, on the other hand, if properly set up, avoids probate since unlike a will, the living trust will actually own the person's assets.

The Cost Difference Between a Trust and a Will.

Because a living trust must own your assets in order to be effective, setting up a living trust is usually much more expensive than doing a will. For instance, if you wish for the living trust to own your home or other real property, deeds and related conveyance documents will need to be drawn up and recorded. This involves additional legal and recording fees. A will, on the other hand, does not own your assets but is simply a directive proscribing how all your assets get distributed when you die. It is important to keep in mind that even if you have a living trust, you may still need a will since some assets (like IRAs and certain retirement accounts) need to remain in the person's individual name and not transferred to the living trust. In that case, the person would need what is called a “pour-over” will that passes probate assets into the living trust upon death of the testator.

Conclusion

While living trusts can serve a useful function, they tend to cost much more money to establish than a will. Whether you need a trust depends on your individual circumstances and estate planning goals. In many cases, the extra cost and effort to set up a living trust can be avoided with a relatively simple will.

As always, navigating legal matters can be complex and requires the guidance of competent legal counsel to protect your rights and interests. Don't leave important matters to chance—retain reliable legal counsel to guide you every step of the way!