Escape Probate Hassles with a Living Trust Strategy
Probate is a legal process that can happen after someone passes away, validating the person's will (if any), determining what property is part of the probate estate, paying off debts, and distributing the rest of the assets to the beneficiaries. Although that may be an important procedure, in order to ensure a person's final wishes are fulfilled it is often a tedious, lengthy and expensive process. Depending on the size of the estate and how busy the court is at the time, probate can last anywhere from a few months to more than a year1. Worse, probate is public, which allows you to look up the estate in a way that some families often find privacy-invasive.
Advantages of Utilizing a Living Trust
A living trust, also called revocable trust, is one of the estate planning tools that the taxpayers use to help them avoid probate. A living trust, set up during your life, enables you to put title to your assets into the trust for the benefit of the beneficiaries of your trust. The biggest benefit of a living trust is that it allows the assets to be transferred directly to the beneficiaries after the death of the grantor avoiding the expense and delay of probate2.
Types of Living Trusts
There are mainly two kinds of living trusts —revocable and irrevocable. With a revocable living trust, the grantor maintains control over the trust assets and can modify the trust or eliminate it, at their discretion. This provides flexibility in case these individuals would like to revise their estate plans as time passes. In contrast, an irrevocable trust generally cannot be modified after the terms are set, providing certain tax advantages and a safeguard against creditors3.
Cost Considerations
Although establishing a living trust may require some investment (the cost of an attorney can be $1,000-$3,000 depending on the intricacy of the trust), these initial expenses can be recuperated through eliminating probate fees, which can be a percentage of the estate value4. In addition, avoidance of probate can save the beneficiaries from time-consuming and costly legal battles as well as waiting periods that can be traumatic.
Real-World Example
Suppose a family has a fairly average estate totaling $500,000. The probate cost anywhere from 3% to 7% of the value of the estate without a living trust which will cost the heirs anywhere from $15,000 to $35,000. With a living trust, the family would not have to pay any of those fees and the assets would smoothly transfer over to the beneficiaries5.
How to Create a Living Trust
Here is how to make a living trust:
- Select which assets to put into the trust and obtain documentation.
- Choose a trustee who will administer the trust This is either the grantor himself or a third party.
- Create the trust document: List the beneficiaries and any conditions for the transfer of assets.
- It means putting the assets into the trust, which usually requires retitling property and accounts.
- Try to put the trust document somewhere safe and review the document from time to time to make sure the document reflects current needs.
Final Thoughts
In this living trust we can control how you plan your estate, avoiding the cost and wait of probate instead. If they used the information here to make those decisions, those who are responsible for passing on whatever the person has gained during their lifetime can do so without regret or concern that the loved ones left behind will be in chaos.
References
- Nolo - How Long Does Probate Take?
- Investopedia - Living Trust
- NerdWallet - Revocable vs. Irrevocable Trusts
- The Balance - How Much Does a Living Trust Cost?
- Nolo - How Much Does Probate Cost?
