Last week, we discussed what happens when you create a trust through your will. This type of trust—called a testamentary trust – only comes into existence after you pass away and after your estate goes through the probate process.
This week, we’ll look at the other option: a living trust, which is created during your lifetime. I’ll explain how a living trust works, what your family experiences when you have one in place, and how to decide which option makes the most sense for your situation.
As a quick reminder, when a trust is created through a will, your family must first go through probate before the trust can be established. Probate can take months, and sometimes even years, while the court oversees the process.
If your goal is to keep your family out of court and maintain privacy after your death or incapacity, a testamentary trust will not accomplish that.
A living trust, when created and properly funded during your lifetime, can help your family avoid probate, maintain privacy, and make things much easier for the people you love when something happens to you.
Let’s take a closer look at how it works.
How a Living Trust Works
A living trust, also called a revocable living trust, is created while you are alive and able to make legal decisions.
When you create the trust, you transfer ownership of your assets into the trust. You typically name yourself as the trustee, which means you keep full control over your assets during your lifetime.
In practical terms, nothing about your daily financial life needs to change. You can still:
- Buy and sell property
- Manage your investments
- Use your bank accounts
- Make financial decisions as you normally would
The trust simply becomes the legal structure that holds your assets.
Within the trust document, you also name a successor trustee. This is the person who will manage the trust if you become incapacitated or after you pass away.
You also include instructions about how your assets should be distributed. For example, you can decide:
- Who receives your assets
- When they receive them
- Whether assets are distributed all at once or over time
Any protections you might include in a testamentary trust – such as holding funds for children until a certain age—can also be included in a living trust.
The key difference is timing.
Because the living trust already exists and already owns your assets, your successor trustee can step in immediately when needed.
There is no probate filing, no court approval required, and no public disclosure of your estate.
Your successor trustee simply follows the instructions you left in the trust.
This allows your trustee to:
- Pay bills
- Manage property
- Handle investments
- Begin distributing assets according to your wishes
Your family receives the benefit of your planning right away, instead of waiting for the probate process.
Protection If You Become Incapacitated
A living trust can also help if you become unable to manage your affairs while you are still alive.
If illness, injury, or cognitive decline prevents you from making financial decisions, your successor trustee can step in and manage the trust assets for you.
Your family does not need to go to court to obtain guardianship or conservatorship. The person you chose simply takes over the responsibilities you defined in the trust.
This can make an incredibly difficult time much easier for your loved ones.
The Step Many People Miss: Funding the Trust
There is one very important detail many people overlook when creating a living trust.
The trust only controls assets that are actually transferred into it. This process is called funding the trust.
For example, this may involve:
- Retitling your home into the name of the trust
- Updating bank and investment accounts
- Reviewing and updating beneficiary designations
If you create a trust but never transfer your assets into it, those assets will not be controlled by the trust. Instead, they may still have to go through probate.
This is why working with an attorney who has a complete estate planning system is so important. Creating the trust document is only the first step. A complete plan ensures that your assets are properly titled, your beneficiaries are updated, and your plan continues to work as your life changes.
In our office, we guide clients through this entire process so nothing important is overlooked.
Understanding the Tradeoffs
If living trusts provide these benefits, you might wonder why anyone would choose a testamentary trust instead.
The main reason is upfront cost and effort.
A testamentary trust is typically less expensive to create initially because it is simply added to your will. There is no need to transfer assets into the trust during your lifetime.
For some people, that simpler approach may seem appealing.
However, it’s important to consider what your family will experience later.
Even a relatively simple probate case can cost thousands of dollars in legal fees and court costs. The process often takes many months, and sometimes longer.
During that time, your loved ones may be dealing with grief while also managing legal paperwork, court filings, and financial uncertainty.
By contrast, a properly funded living trust usually allows your family to handle things privately and more efficiently. The successor trustee already knows your instructions and can begin managing and distributing assets right away.
For many families, this approach is less stressful and often less expensive in the long run.
Other Factors to Consider
Your personal situation may also influence which option makes the most sense.
For example:
- Family dynamics: Probate is a public process. If family members may disagree about your wishes, that public process can sometimes increase conflict. A living trust keeps your estate private.
- Multiple properties: If you own real estate in more than one state, your family may face probate in each state. A living trust can help avoid this.
- Business ownership: If you own a business, probate delays could interrupt operations. A living trust allows for smoother management during transitions.
Looking at these factors can help clarify which approach better protects the people you care about.
How I Help You Create a Plan That Actually Works
As a Life and Legacy Planning attorney, our focus is not just on preparing documents. Our goal is to create a plan that truly works for you and your family.
We begin by helping you understand what would actually happen if you became incapacitated or when you pass away. We walk through the real timelines, the real costs, and the real experience your loved ones may face.
From there, we help you decide which planning approach fits your goals, your family dynamics, and your budget.
If a living trust is the right solution, we do more than prepare the document. We guide you through funding the trust properly so your assets are titled correctly and nothing is overlooked. We also help keep your plan up to date as your life changes.
Most importantly, we remain available to support your family if something happens to you.
Your loved ones won’t be left trying to figure things out on their own. They’ll have a trusted advisor who understands your wishes and can guide them when you no longer can.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. The Life & Legacy Planning Session will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a 15-minute introductory call today. you love means planning with clarity – not guesswork.