This article is intended for educational purposes only and is not legal advice. For guidance on your personal situation, please contact a lawyer.
Figuring out who will inherit your assets after your passing can be a tricky and emotional process. But it's important to go through those motions so you can be assured that your wishes will be carried out.
If you're looking to leave an inheritance to your loved ones, you have different options to choose from. Many people decide to write a will and leave things at that. But you may also want to consider a living trust as a means of passing on wealth.
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That said, a living trust isn't necessarily right for everyone. So it's important to dip deeper to see if it's the right tool for you.
The benefits of a living trust over a will
A living trust is a legal arrangement that allows you to pass on assets to the beneficiaries you designate. You're able to maintain control over a trust and its assets as long as you're alive. This means you can remove assets you change your mind about, or add or remove beneficiaries.
Now wills are fairly similar in this regard, since they can be amended. But one big benefit a living trust has over a will is that it isn't subject to probate.
Probate is the process of proving a will's validity in court. And there are several potential problems with it.
First, it can be expensive. Secondly, it can be lengthy, which delays the transfer of your assets to their intended recipients.
Another big issue with probate is that it makes your will a matter of public record, the same way mortgage details can be accessed by any nosy person out there. If you want the details of your estate to remain private, then you may want to use a living trust to pass on wealth instead, since it won't be subject to probate.
Do you actually need a living trust?
A living trust can be useful if you want to protect your loved ones' privacy and you're passing along assets whose transfer has the potential to be complex, like a portfolio of properties in different states. In that case, if you put those properties into a will, you loved ones may have to go through the process of probate in each state you own real estate.
But if your assets are fairly straightforward, then you may not need to bear the cost of a living trust. And while the cost of setting one up will depend on your specific situation, it could be a more expensive prospect than writing a will.
You should also know that in some cases, you may not even need a living trust -- or a will, for that matter -- to pass assets along to your loved ones. Say you have an IRA that's worth $100,000 at the end of your life, and that's your sole asset. If you designate your two children as equal beneficiaries on that account, each one will inherit $50,000 upon your passing -- even if there's nothing in a will or trust mentioning your IRA.
You should also know that your assets won't necessarily receive more favorable tax treatment if they're put into a living trust. So if your goal is to save on taxes or lower your beneficiaries' tax burden, a living trust generally won't help.
All told, there are plenty of good reasons to consider using a living trust to pass on an inheritance. But it's important to sit down with an estate planning attorney and see what they recommend based on your personal situation.
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