This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
When you work hard your entire life to accumulate wealth, you want to do what you can to pass it down to future generations in the most effective way possible. To that end, you may be considering a living trust as a means of passing on an inheritance to the people you love the most.
A living trust is a legal document that you can establish. You can transfer different assets of yours into a living trust so you're maintaining control over them while you're still alive. You can also designate beneficiaries for your living trust who will get a claim to those assets after you pass away.
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The requirements for establishing a living trust can vary based on your state of residence. An attorney who deals with estate planning can walk you through the process of setting one up if it's a route you decide to take.
The benefits of a living trust
One of the primary benefits of a living trust is that it allows your loved ones to avoid probate. Probate is the process of proving a will's legitimacy in court and making sure all assets land in the right hands.
Probate might sound like a good thing in theory but can be cumbersome and lengthy, resulting in a delay in your assets being disbursed. It can also get expensive.
Wills that go through the probate process become a matter of public record and you may not want outsiders to know that you're passing on certain assets to your heirs. With a living trust, you and your loved ones can maintain more privacy.
With a living trust, you can maintain control over your assets during your lifetime. You can also alter the terms of your trust at any time should your circumstances change. Granted, you can do the same with a will, but with a living trust, you're not locked into the initial criteria you establish.
The drawbacks of a living trust
A living trust could help your beneficiaries avoid an annoying probate process down the line. But setting one up may be more costly and time-consuming than simply writing a will.
Remember, once you create a living trust, you have to go through the process of transferring assets to it. You may also be looking at higher attorney fees to set up a living trust than with a basic will.
Also, any assets you place in a living trust are still subject to applicable estate taxes. Currently, the tax code has a pretty generous estate tax exemption in place, but that rule could change for the worse over time. In fact, it could change as early as 2026 since that's when the current estate tax exemption rule is set to expire.
Is a living trust right for you?
If you're looking to pass on a lot of wealth to your heirs, you may want to consider a living trust, despite the complexities of setting one up. For a more modest inheritance, a basic will may suffice.
If you're not sure which route to take, consult an estate-planning attorney. They can help you compare your choices to see which option is optimal for you.
