A living trust can be a very effective estate-planning tool. When you create a trust, you transfer the title of your property that you put into it over to the trustee of the trust. It’s called a “living” trust because you are alive when you create it.

Living trusts allow your heirs to take possession of your assets immediately. All property that isn’t jointly held, does not have a named beneficiary, or is not in a trust must go through probate, which can be a very lengthy process. Probate can cost thousands of dollars and take years to settle, especially if there are complications. Avoidance of this process is one of the main reasons people set up trusts. Property that’s in a trust passes to your heirs immediately upon your death. And although trusts are much more expensive to set up than wills, they’re also much more difficult to contest.

A living trust will make your estate much less expensive to settle. Since assets in the trust don’t have to go through probate, those costs are eliminated. With a will, three to five percent of the value of your estate could be used up in probate costs. With a trust, settlement costs could be as low as one percent.

Living trusts also give you complete control of your assets. While you’re alive, you can live off the income in the trust, manage the assets in the trust, even dissolve the trust if you so desire. The trust is fully revocable and can be managed or changed at your discretion. In addition, a living trust allows you to appoint a successor trustee to manage your assets should you become unable to do so. Without a trust in place, if you were to become incapacitated, the court would appoint someone to handle your affairs. A trust allows you to avoid this by naming whoever you choose to manage your affairs if you can no longer do it yourself.

Probate is a public process, but living trusts are private documents. Any assets that go through probate become a matter of public record. With a living trust, there’s no need for your neighbors, friends or anyone else to know all about your assets and finances, or how much your heirs have inherited. This makes trusts especially attractive for public figures or celebrities.

Living trusts make it easy to transfer assets across state lines. Without a trust, if you own property in more than one state, your estate would have to go through probate in two (or more, as the case may be) states. That equates to at least double the paperwork, double the time, and double the expense. All of this is avoided if the assets are held in trust.

Living trusts can be very useful, but they are not the greatest invention known to man. They have been hyped as the answer to every estate settlement problem, which simply is not true. For example, they do not enable you to avoid estate taxes. Only an irrevocable trust can do this. Therefore, be very careful when setting up a trust and seek the help of an experienced professional to assist you in these matters.

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