Do You Have a Living Trust?

A trust, like a corporation, is an entity that exists only on paper but is legally capable of owning property. A flesh and blood person, however, must actually be in charge of the property; that person is called the trustee. You can be the trustee of your own living trust, keeping full control over all property legally owned by the trust.

There are many kinds of trusts. A "living trust" (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.

All living trusts are designed to avoid probate. Some also help you save on death taxes, and others let you set up long-term property management.

Do I need a living trust?

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee, the person you appointed to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

Is it expensive to create a living trust?

The expense of a living trust comes up front. Many lawyers would charge relatively little for drafting your will, in hopes of getting your estate later as a client. They may charge more for a living trust.

Some people have chosen to use a self-help book or software program, to create a Declaration of Trust (the document that creates a trust) yourself. They may consult a lawyer if they have questions that the self-help publication doesn't answer. But there's always the danger of problems they don't see, that a lawyer could help avoid if consulted.

Is a trust document ever made public, like a will?

A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate, inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, need not be made public.

Does a trust protect property from creditors?

Holding assets in a revocable trust does not shelter them from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate). That complicates matters for creditors; by the time they find out about your death, your property may already be dispersed, and the creditors have no way of knowing exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor's time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.

Do I need a trust if I'm young and healthy?

Probably not. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your early death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don't need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance, would be simpler.

Can a living trust save taxes?

A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death.