This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Thorough financial planning involves many things. There's budgeting, goal-setting, investing, retirement savings, and estate planning. Most people are familiar with the first four, but estate planning is often put on the back burner because it feels less urgent or something only reserved for the wealthy.
However, that's far from the case. Estate planning is important for anyone who wants to ensure their assets are distributed according to their wishes when they're no longer around. It's also important to avoid unnecessary legal hurdles.
There are several ways to leave an inheritance, including a living trust. Although a living trust is not the ideal route for everyone, it has a few benefits that make it a great option. Let's look at three.
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1. You can avoid going through the probate process
When it's time for a will to be executed, it often goes through a process called probate. During probate, a court verifies that a will is authentic and then oversees the distribution of the assets to ensure it happens according to the will.
Having a court oversee the distribution sounds like a major plus (and it can be, in some cases), so you may be wondering why you'd want to avoid probate. However, people who have gone through the process can tell you it's about as enjoyable as a trip to the DMV.
The main problem with probate is that it's known for being time-consuming and expensive, neither of which is appealing to most people. The length will vary by case, but it's not unheard of for probate to take months to years to complete, and intended beneficiaries won't always get access to all of the assets during that time.
Costs also vary because individual states usually set guidelines. Sometimes it's a percentage of the estate's value.
With a living trust, you get to avoid the probate process because the assets are already in the trust and managed and distributed according to the terms already set.
2. Living trusts can allow for more privacy
A will isn't the best route for people who value privacy because the details of the will typically become public information anyone can access after it goes through probate. The fact that people can see what assets were left behind, their value, who was receiving them, and other details that could be problematic for those who'd rather keep this information private.
There have been plenty of instances of families feuding because they disagreed with the will, financial predators preying on vulnerable people (young, elderly, financially inexperienced, etc.) who come into a large amount of money, and opportunists looking to pull off scams.
Luckily, the details of a living trust don't typically become part of the public record.
3. Flexibility helps in changing life circumstances
A living trust is also called a revocable trust because it can be changed or revoked anytime while you're alive. This flexibility allows people to adjust their living trust to adapt to changing life circumstances.
These are examples of life events that could warrant making changes to a living trust:
- Marriage or divorce
- Birth or adoption of a child or grandchild
- Death of a beneficiary
- Significant change in financial situation (good or bad)
- Buying or selling a property
This list is not exhaustive of all the reasons you would change a living trust, but it shows how many different life circumstances could warrant doing so.
For minor changes (like adding or removing a beneficiary), a simple amendment is typically all that's needed. For more substantial changes (like changing how assets are distributed), the living trust could need to be completely redone.
In either case, ensuring your estate plan reflects your current wishes and situation is extremely important. That's why the flexibility of a living trust can't be overlooked.
Remember: If you are considering a living trust, consult an estate planning attorney to see if it makes sense for your situation. They're not the best option for everyone.
