The Pros and Cons of a Living Trust

Arizona families have many options at their disposal to plan for the future, and one of the most versatile options is a living trust. While trusts may be associated with the rich and famous in popular culture, the truth is that they can be useful for people from all walks of life, depending on your circumstances and what you're trying to accomplish with your estate plan.

What is a living trust?

A trust, broadly speaking, is a legal entity empowered to hold property belonging to a trustor (also known as the grantor or originator of the trust). The property in the trust is managed by a trustee for the benefit of a named beneficiary.

A living trust is a type of trust created while the trustor is still alive, as opposed to a testamentary trust created upon the trustor's death. The term "living trust" usually (but not always) refers to a revocable trust, which means the trustor can remove assets or change the terms of the trust at any time. In contrast, an irrevocable trust can't be changed after it's created; as we've explained previously, when you put assets in, it's a one-way trip.

Note that the trustor, trustee, and beneficiary are not necessarily three different people. You may be able to name the same person for more than one role, depending on the circumstances and the type of trust. For example, you can put your assets into a revocable living trust and remain in control of them by naming yourself as the trustee. In this case, you would also name a successor trustee to manage the trust in the event of your death or incapacitation.

What are the advantages of a living trust?

Perhaps the most common reason people create trusts is to avoid probate (the court-supervised process of distributing an estate). If you put your assets in a trust and name a successor trustee to manage those assets on your death, then the trustee distributes those assets according to the instructions you gave, without the courts getting involved. This is a potentially faster distribution and a less costly process. (Note that it's still important to create a "pour-over will" to catch any assets that are not included in your trust, which may still have to go through probate.)

Creating a living trust also protects your privacy. While probate is a public process and your Last Will and Testament is public record, a trust is a private document only accessible to the parties involved.

A revocable living trust keeps you in control of your assets. If your estate plan needs to change because of family or financial circumstances, you have the flexibility to make those changes.

What are the disadvantages of a living trust?

Compared to an irrevocable trust, a revocable living trust generally provides less protection for your assets. Because you are still in control of the assets in the trust, they are not shielded from creditors, taxes, or litigation in the same way that assets in an irrevocable trust would be.

Setting up a living trust also requires some administrative work on the front end. It takes time and effort to re-title assets from individual ownership to the trust. It may also be more difficult to refinance property held in the trust, depending on the circumstances.

Talk to an experienced attorney about your estate planning options

Ultimately, like every estate planning tool, a living trust has the potential to provide you with peace of mind and secure your family's future. That's why it's so important to talk to an attorney about your options and get legal advice when setting up your trust. If you're considering creating a living trust, give us a call or contact us online for a free, confidential consultation.