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Living Trusts & Wills

Many people come to our office, asking us to write a will for them. When we ask them if they have considered a living trust instead, most have no idea what a living trust is, or how it can benefit them.

Does everybody need a living trust? No. But for the vast majority of people, especially those who have children or other close family members that they wish to support, a living trust can save tens of thousands of dollars, and needless weeks or even months of legal wrangling.

What is a living trust?

A trust is a document that describes your assets—bank accounts, stocks and retirement funds, properties—and who the trustee is that has control over those assets. A trust is often referred to as a “living trust” because a trust is active while you are still alive. This is why most people who get a trust name themselves as the trustee, giving them control over the trust and the assets it contains.

What makes a trust useful is that you can name a successor who will assume control of your trust if you die, or are physically incapacitated (which allows the successor to use your assets to help pay for medical care and other necessities).

A trust contains instructions for the successor trustee to carry out when you die. These instructions describe who your beneficiaries are, and what assets should be transferred to each of them. While a trustee does have control over the contents of a trust, they are legally obligated to distribute your assets as dictated by the trust, as well as to use your financial assets to pay debts and taxes. It is the trustee’s duty to fulfill the instructions laid out in the trust.

How is a trust different than a will?

A will does bear a number of similarities to a living trust, in that it describes your property, and what assets should go to each of your beneficiaries. A will can do some things that a trust cannot, such as name legal guardians for any minor children or other dependents you have.

But while a living trust is active from the moment it is signed, a will is not; a will does not become an enforceable legal document until your death. Similar to a living trust, a will names a person (the executor) who will assume legal control of your property. But because a will does not become active until your death, the executor will be unable to assume control of your assets if you become disabled, meaning that the court system will have to intervene on your behalf.

Additionally, when a will’s creator (the testator) dies, and their assets are worth more than a total of $150,000, the will must enter a legal process called probate. Probate is a lengthy process, which begins with a court determining whether or not the will is valid. Then, the court goes through the process of identifying all of your belongings, having them assessed and appraised, paying your debts using your liquid assets (and through the auction of physical properties, if necessary), and finally distributing your property as you desire.

The problem is that probate is a very expensive process, involving court time, lawyers, judges, and more.

All of this is paid for using the assets in your will. A probate attorney’s fees alone can amount to 5% or more of your total estate. For an estate worth $500,000, the probate lawyer may pocket more than $25,000 of it. Not only is it costly, but because court proceedings are a matter of public record, the full inventory of your belongings, their value, and the identities of all of your beneficiaries would be made public as well.

This is why a living trust is a useful and important document. If you would prefer to have all of your assets go to your loved ones—rather than paying for the services of attorneys and other government functionaries—and maintain your family’s privacy, then you should look into preparing a living trust.

If I have a living trust, is it necessary to have a will as well?

Yes. As noted above, there are some things that you can only do in a well, such as name legal guardians for any dependents you have, such as minor children and disabled or elderly relatives. Also, many people obtain additional assets during the space of time between the preparation of their living trust, and their death. Because these additional assets would not be included in the trust, it would fall to the courts to determine to whom these assets should be distributed.

To avoid this problem, you can have a will written which contains a “pour over” clause.

This is simply a provision which states that any belongings not explicitly named in the trust should be transferred into the trust upon your death. These assets will still have to go through probate, but by having most of your property already placed in a trust, you will minimize the time and cost of the probate process.

Should everyone have a living trust?

No. A living trust is generally only recommended when a person has assets in excess of $150,000, and does not own a home, vehicles, or other valuable physical properties in addition to other assets. When a person with assets amounting to less than $150,000 dies, relatives who have a legal right to inherit the property can file an “Affidavit to Transfer Personal Property.” This document allows them to transfer the deceased party’s assets to their name without having to go through a probate process.

Even for those with estates worth more than $150,000, sometimes the cost of setting up a living trust can exceed the expenses that would be incurred by the probate process. Secondly, because trustees are not supervised by the court, a trustee may accidentally or intentionally not act in your best interests, and the interests of your beneficiaries. This is why we carefully consult with all of our clients, to determine what the best course of action is for them. Every circumstance is different.