Only 40 percent of Americans have a will or living trust.
More than half of the population has no legal control or protection
over their assets in the event that they die or become incapacitated.
Frighteningly, nearly a third of older adults have never even discussed
their end-of-life wishes with their families.
But the entire subject is often a source of confusion. Who needs a living trust? Who can get by with just a will? How do you know which category you fall into?
Keep reading to learn what a living trust can do for you and if you or a loved one should create a trust as part of your estate planning process.
What Is a Living Trust?
While most people have a decent idea of what a will is and does, many wonder, “What is a living trust?”
Like a will, a living trust is a legal document that designates control or ownership of one’s assets. Unlike a will, a living trust goes into effect immediately upon creation rather than upon the creator’s death. This means it can be used to:
- Protect or control assets in the event of dementia or incapacitation
- Distribute assets in ways wills cannot
- Avoid probate
Under a living will, an individual legally becomes the “trustee” of his or her own assets.
Types of Trusts
Living trusts should not be confused with testamentary trusts. Living trusts are established and take effect while the creator is alive. Testamentary trusts are created upon an individual’s death in accordance with his or her will.
There are two kinds of living trusts:
In revocable trusts, individuals may add to, alter, or dispose of the covered assets at their discretion.
Under irrevocable trusts, no changes may be made to the covered assets once the trust is established.
The exact rules over what a trust may cover and how it is structured can vary from state to state.
Who Can Create a Living Trust?
Anyone with assets of any kind can create a living trust.
Many people mistakenly believe that only the wealthy need wills or trusts. This is untrue. Even individuals with modest estates benefit from clearly outlining their desires for themselves and their assets via the appropriate legal documents.
Primary Benefits of a Living Trust
Individuals questioning “do I need a will or a trust?” often find the decision easier to make when they understand the numerous benefits living trusts can afford them.
Protection Against Incapacitation
As of 2019, 14 percent of Americans 71 years of age and older have some form of dementia. That number is only expected to increase as the population continues to age.
Living trusts protect both individuals and their assets in the event that they develop dementia or are otherwise incapacitated. With a living trust, incapacitated individuals can:
- Restrict access to and control of their finances to the person(s) of their choice
- Ensure that their assets are used according to their wishes
- Prevent themselves from being assigned to conservatorship
Creators can also safeguard assets they wish to pass along to their families that might otherwise be sold to fund their care.
Probate is a court-led process that typically occurs when an individual dies. It involves the assessment and distribution of the deceased’s assets.
Whether or not its reputation is deserved, probate exists as something of a nightmare in the public consciousness. Living trusts can place assets outside of probate, thereby sparing survivors the pain and stress of that process.
Granting Assets to Minors
Technically, individuals can bequeath assets to minors via their wills. However, in those situations, a court-appointed adult is assigned to control the assets in question. They may continue to control them until the beneficiary is 18 or 21, per state rules.
Living trusts enable individuals to specify:
- Who controls the assets until the minor is of age
- When the minor qualifies to receive their assets (e.g. upon graduation from high school or college)
- What purposes the assets may be used for (college tuition, a vehicle, housing, etc.)
Secondary Benefits of a Living Trust
Living trusts also offer additional benefits that may be of interest in some situations.
Living trusts can also allow creators to implement back-up plans. For instance, one might specify a primary beneficiary for an asset as well as a secondary beneficiary. This can ensure that precious items remain in the family instead of becoming subject to secondary assignment if the first beneficiary dies.
Legal wills become public documents upon an individual’s death. Living trusts remain private, allowing people to mask their finances and decisions from open view.
This can be particularly valuable in situations involving:
- Large sums of money
- Blended or second families
- Business assets
Who Needs a Living Trust?
“Do I need a trust?” is a common question among individuals exploring their estate planning options.
While only you can decide if a living trust is right for you, these guidelines can help you make an informed choice.
If you own property that you wish the bequeath to specific members of your family, a trust may be a valuable investment. This is particularly true if:
- Complicated family dynamics are involved
- Both primary and secondary requirements are needed
- Property is owned in multiple locations
Marital and Family Status
Married individuals can often easily pass shared property to their spouses. Unmarried couples may need a living trust to keep property out of probate and bequeath it as desired.
Trusts can also be important for individuals whose legal next of kin are not willing or able to properly handle their finances in the event the creator dies or is incapacitated. Trusts can designate an alternate, more appropriate party instead. This can be particularly relevant for single individuals who would prefer their assets not be left to parents or siblings who do not share their values.
Age and Health
Living trusts are especially valuable to individuals who are:
- Of any age but in poor health
- Recently diagnosed with early-onset or chronic health conditions
The more assets you have, the more likely you are to need a living trust.
The types of assets matter, as well. Real estate, businesses, and other legally complicated assets may be a much stronger reason to invest in a living trust than simple net worth.
Parents or Guardians of Minors
As noted, anyone who wishes to leave assets to minors and have control over how those assets are handled likely needs a living trust.
How Do I Set up a Trust?
Always seek out a qualified legal professional to assist you in creating a living trust.
“Why do I need a trust lawyer?” you may ask. “Can’t I write my own using online tools?”
Although online sites may claim to enable you to quickly and cheaply write your own, this is rarely a good plan.
- Trusts must be carefully written to accomplish your goals
- Exact rules governing trusts vary from state to state
- Individuals with assets or beneficiaries in different states or countries face extra legal complications
- Items you forget to include are not folded into the trust and remain subject to probate
Before meeting with a professional, it can be helpful to make a list of your assets and your preferences about how they should be handled. Is it also important to consider what steps you would want to be taken if you were to become incapacitated.
Start Planning Your Trust Today
If you read the guidelines on who should have a living trust and saw yourself in them, don’t wait. Now that you know all about who needs a living trust and why contact the experts today and get the help you need to protect yourself and your family.