A living trust is a legal arrangement established by the grantor in their lifetime to protect their assets and instruct distribution after the grantor's death.
Forbes’ recent article entitled, “What Is A Living Trust? Definition, Benefits, Pros & Cons” provides some of the advantages of having a living trust in place:
Assets Held in Trust Transfer Outside the Probate Process.
The successor trustee arranges the transfer of assets through the trust administration process. This process is quicker than the probate process, which can take months or even years to facilitate the transfer of assets to those who inherit them. The probate process is also public record. However, the assets in a trust transfer privately.
The Successor Trustee Manages Assets in Case of Incapacity.
If you become incapacitated, you can say that the successor trustee assumes management of trust assets. This will spare your family from going to court to appoint a guardian or conservator if you don’t have a trust or a power of attorney.
You Keep Control Over Assets During Your Lifetime.
Unlike an irrevocable trust that generally can’t be changed and requires you to forfeit control of your assets, you keep control over the property you transfer into your living trust. Not only can you be the trustee during your lifetime, but you can also modify the terms of the living trust or cancel it at any time.
You Reduce the Risk of the Wishes Being Challenged.
A will can be contested if you pass away, which could be very expensive and potentially result in your chosen beneficiaries not receiving the assets you wanted to be transferred to them. A trust can be contested. However, it can be more challenging to show a problem that makes it invalid—especially if the trust was in effect for a long time before you passed away.
There are also some disadvantages of a living trust Let’s take a look:
A Living Trust Doesn’t Provide Solid Asset Protection.
When you make a living trust, creditors can still go after trust assets because you retain control of the property. If you go into a nursing home, the assets held in your living trust are counted when determining if you are eligible for Medicaid to pay for your nursing home.
A Living Trust Doesn’t Avoid Estate Tax.
While assets held in a living trust don’t pass through the probate process, they’re still considered part of your taxable estate.
Reference: Forbes (May 12, 2023) “What Is A Living Trust? Definition, Pros & Cons”