Are Living Trusts Necessary?
Death is the final punctuation mark on a person's life. Rather than leaving a question mark as to how a person wanted her property to be distributed, estate laws allow people to create a set of final instructions. Traditionally, a will is used. A living trust can be appropriate in some cases. The type of estate plan depends on each person's unique situation. A living trust is not necessary, but it can be advantageous.
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Explanation
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A living trust is an estate-planning scheme. The trust itself is an actual legal entity, akin to a corporation. The trust functions for the benefit of named beneficiaries. The person responsible for overseeing the trust function is the trustee. When property is held in trust, the trustee cannot use it for his personal benefit; the trustee must ensure that the property is used in the best interests of the beneficiaries. The beneficiaries, however, only have access to the property according to the terms of the trust. In a living trust, the creator (called the settlor or grantor) acts as both trustee and beneficiary. This allows him to continue to control and enjoy his property. When the grantor dies, successor trustees and beneficiaries take over.
When Might A Living Trust Be Necessary?
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Determining whether a living trust is necessary involves analyzing a person's own unique situation. Some general rules may apply. According to Nolo, persons under 60 generally have no use for a living trust since the estate planning scheme has no effect on the person during her life and, assuming the younger person will live a long life, the trust can be difficult to maintain and oversee. A living trust is probably not necessary for small estates or for "simple" estate plans (such as one leaving the entire estate to a spouse or equally to the children). If a person has a child that is terrible with money, however, a trust may be useful because the person can draft the trust in a way that prevents the child from having complete access and control to her inheritance.
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Pros and Cons
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Living trusts offer several advantages. Trusts can help minimize the impact of estate taxes, which can be particularly expensive for large estates. A trust does not need to be put through probate, which can be expensive and timely. It can, however, be costly to set up and a person should consider speaking to an attorney for help creating it. Additionally, trusts require maintenance. Property must be specifically titled to the name of the trust or else the trust does not control that property.
Alternatives
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Living trusts may not be necessary considering the other alternatives. A will, for example, is relatively easy to create. Probate for a will can be expensive and timely, but for simple estates, the process may actually be less expensive and time consuming than creating a trust. Further, even if a person dies without an estate plan, each state has succession laws in place to divide the person's property up among his family members. This intestate succession scheme may actually be what a person wanted to begin with, which would mean that the person did not need a formal estate plan at all.
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