I have a will. Why would I need a living trust?
A will may not be the best plan for you and your family, mainly because a will does not avoid probate when you die. Almost all distributions directed by a will must be supervised and approved by the probate court.
Also, because a will can only go into effect after you die, it provides no protection if you become physically or mentally incapacitated. In that situation, it may be possible for the court to take control of your assets before you die, which is a concern of millions of older Americans and their families.
Fortunately, a revocable living trust will avoid probate and let you keep control of your assets while you are living and enables you to direct who will handle your affairs upon your incapacity or death.
Doesn’t joint ownership avoid probate?
In the case of most jointly owned assets, when one owner dies, ownership transfers to the surviving owner without probate. But if the surviving owner dies without adding a new joint owner, or if both owners die at the same time, a probate proceeding is necessary before the asset can go to the heirs.
And, there may be other problems. When you add a co-owner, you lose some control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased and there could be gift and/or income tax problems. Since a will does not control most jointly owned assets, the end result may be that the asset winds up being distributed in a manner you may not have wanted.
With assets such as real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court – and in some situations a conservatorship becomes necessary. Once a conservatorship is established, the court has to approve any decisions about the property.
Does a power of attorney prevent the court’s involvement at incapacity?
A durable power of attorney lets you name someone to manage your financial affairs if you are unable to do so. However, many financial institutions won’t honor one unless it’s on their form. And, if accepted, it may work too well, giving someone total authority to do whatever he/she wants with your assets. It can be very effective when used with a living trust, but risky when used alone.
What is a living trust?
A living trust is a legal document that, just like a will, contains your instructions for what you want to happen to your assets when you die. But, unlike a will, a living trust avoids probate at death, can control all of your assets, and prevents the court from controlling your assets at incapacity.
How does a living trust avoid probate?
When you set up a living trust, you transfer assets from your name to the name of your trust (which you control), for example, from “Bob and Sue Smith, husband and wife,” as individuals, to “Bob Smith and Sue Smith, as Trustees under the Smith Family Living Trust dated June 30, 2008.”
Does my trust end when I die?
Unlike a will, a trust doesn’t have to die with you. Assets can stay in your trust, managed by the trustee you have chosen, until your beneficiaries (including minor children) reach the age(s) you have chosen for them to inherit. You may also have an ongoing trust to provide for a loved one with special needs.