Is A Living Trust Really The Best Way To Pass An Inheritance To Your Family?

This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.

Throughout my life, I've always heard that it's better to be proactive than reactive. That goes for your health, career, and finances. Being proactive helps ensure that you're ahead of the curve and can have more control over important aspects of your life.

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Regarding your finances, being proactive is important for building wealth, retirement planning, and estate planning. Estate planning often doesn't get as much attention as the other two, but it's equally as important in many situations.

Estate planning entails a few different things, including detailing how you'd want your assets and affairs handled after you're no longer around. A will is the most common way, but it's not the only option. There's also a living trust. A living trust has many benefits but isn't ideal for everyone. Is it the right option for you? Let's take a look.

What exactly is a living trust, and what are its benefits?

A living trust is a legal document that allows you (the grantor) to put assets into a trust and outline exactly how you want them distributed after you pass away. A will works similarly, but the two have a few key differences.

A living trust can let you avoid the probate process. During probate, a court determines a will's validity and then oversees the distribution of the assets listed in the will. Is it helpful? Sure. However, it can also be an expensive and lengthy process because of court fees, legal expenses, and court delays.

There's also the privacy factor. When a will goes through probate, it becomes a part of the public record, meaning anyone can access details about it. That includes the assets, their values, and who inherited them. Details about a living trust, on the other hand, typically remain private.

What are some of the drawbacks of a living trust?

A will is fairly straightforward and can be done relatively easily if your estate isn't complex. Plenty of online services and templates allow you to do it inexpensively. A living trust takes a bit more work and is typically costlier to set up than a will.

Since the assets in a living trust belong to the trust, you have to go through the effort to formally transfer and retitle the assets so the trust legally owns them. This goes for brokerage accounts, properties, or any other possessions you wish to include. Failing to do so could mean going through the probate process, which defeats much of the purpose.

You'll also need to continue formally transferring new assets into the living trust, whereas a will's terms often automatically include new assets without needing to retitle them or take additional legal steps.

Who is a living trust the best option for?

Before we talk about who a living trust is best for, let's talk about who it doesn't make sense for.

If you have a relatively simple estate -- as in a modest amount of assets, one property, or no complicated distribution rules -- you might be better off going with a will. It's easier to set up and maintain, and you can avoid unnecessary complexities that might not add much benefit.

That said, a living trust can be a great option for those with more complex estates, such as multiple properties, large investment portfolios, or business interests. For example, if you own properties in multiple states (say, a vacation home), a will could mean going through the probate process in different jurisdictions, potentially adding time and costs.

Living trusts also often make sense for those who deeply value privacy. In some cases, public figures or high-net-worth individuals may choose a living trust just for privacy, even if their estates suggest a will would be just as effective.

Unfortunately, there's no straightforward answer to who a living trust is best for, as it largely depends on personal situations. If you're on the fence, one of the best things you can do is consult an attorney specializing in this field. The additional cost could be worth avoiding any missteps.

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