What is a living trust and do I need one?
It seems everyone is hearing more and more about "living trusts" and "revocable trusts" lately. A lot of people seem to think that a trust is only for the super wealthy or those that are avoiding estate taxes. The truth is that, while a trust can absolutely be used to minimize estate taxes, a trust can be a useful estate planning tool for many people in a variety of situations.
In its most basic form, a trust is a private legal arrangement in which you state what you want to happen to your assets and who you want to be in charge. In this way it is very similar to a will. However, a trust is itself an entirely independent entity that you create to hold assets. The trustee will administer your assets titled in the trust in the way you have crafted it. This gives you the ability to have much more control over your assets for as long as the assets are held in the trust.
One of the most common uses of a trust is to hold an inheritance for your loved ones over a longer period of time. For example, you might decide that your young heirs should not get their entire inheritance in one lump sum distribution. Indeed, receiving an inheritance at too young an age can be more of a hindrance than a help. As a solution, a common trust term would say that the young person can receive part of the inheritance at age 25, part at age 30, and the rest at age 35. This way, the inheritance is stretched out over a number of years and used when the heir has reached certain milestones in life. Even better, you can draft the trust to have built-in flexibility so that your young heirs can access the trust for certain needs that come up like college, health care costs, and the like.
Another common reason people choose trust-based estate plans rather than will-based estate plans is to avoid probate. Probate is the legal process of submitting a will to the court and appointing a personal representive to administer estate assets. Only those assets that are not titled in a trust, jointly, or with a beneficiary designation are administered through the will and probate court. While some lawyers have made a business of probate fear-mongering, probate is usually a fairly simple and relatively inexpensive process. There are, however, some aspects of probate that you should take into consideration when deciding whether to use a will-based estate plan or opt for less simple tust-based plan.
For many people, a prevailing concern in avoiding probate is the lack of privacy. Because probate occurs in the courts, it is a public record. This means that interested persons (potential heirs, children, etc.) have the opportunity to raise their concerns about your will and personal affairs in court. If you anticipate disgruntled heirs, removing this opportunity by using a trust can sometimes head off estate litigation and promote a more harmonious administration of your estate.
By a will being a public record, this also means that anyone can access and view not only your will, but also an inventory of your estate assets and liabilities, as well as other information about you, your estate, and your heirs. In fact, in Minnesota anyone with an internet connection can look up your estate information by doing a simple name search on the Minnesota courts website. As e-filing becomes mandatory on July 1, 2016, in all Minnesota counties, the public will be able to actually view court records through the judicial branch website. Soon, viewing someone's will and asset information will be as simple as checking your email. Contrary to this public, will-based plan, a trust-based estate plan is private. This is because trusts are not submitted to probate. If privacy is a major concern for you, a trust might be the right solution.
Like a will, a trust is used to handle your affairs and assets for your loved ones when you are gone. While a trust is effective for those managing estate taxes, it can also be an appropriate estate plan for many people. Trusts give you the flexibility to stretch out an inheritance over time and the ability to avoid probate. While many of the fears about probate are unjustified, there are still some valid reasons for avoiding probate. To determine if you should have a will or a trust, you should consult an experienced and unbiased estate planning attorney.
Contact one of our attorneys today for more information.