Due to the recent attention given to the Living Trust in the popular media, I took a somewhat skeptical look at the strategy in another column. The focus of that previous column was to explain that the Living Trust was not the perfect estate planning tool for everyone. I attempted to explain that there are certain times when you wouldn’t want to use a Living Trust and other times when alternative strategies would provide the same benefits. In this column we’ll take a look at some of the good reasons to consider the Living Trust.
Perhaps the most significant advantage of a Living Trust is that it can be designed to manage your assets for you in the event you become disabled or incapacitated. While other estate planning tools, such as the durable power of attorney, can be used to provide wealth management in the event of a disability, none is more flexible than the Living Trust. When used to provide money management in the event of a disability, the trust is created today, but your assets are not transferred to the trust unless and until you become disabled.
In this same vein, the Living Trust can be used by those who need current management of their wealth even though they are in perfect health. This would include persons who have no experience handling money and those who simply lack the time to manage it. For example, a widow who has just received a significant inheritance could create a Living Trust and name a bank or a trusted advisor as the trustee. The trustee would then invest the assets for the widow’s benefit and generally handle all of her financial affairs. One important aspect of such an arrangement is that the trustee is governed by certain well-settled legal principles which require the trustee to exercise a high degree of care in managing the widow’s funds.
Another reason to consider the Living Trust is if you own real estate in different states. For example, if a Pennsylvania resident also owns real estate in Florida, then upon his death it will be necessary to conduct estate settlement proceedings in both states. If, however, the Florida real estate is transferred to a Living Trust, the estate administration in Florida can be avoided.
Living Trusts are also suggested if a Will contest appears likely. While this is not often a major issue, if there are reasons to expect a challenge by disgruntled heirs, then you should consider the Living Trust as a substitute for your Will. It is difficult to successfully challenge either document, however, the trust does provide a slightly stiffer barrier.
Like all other estate planning strategies, the Living Trust merits consideration. However, the Living Trust is not the magic remedy that its promoters would have you believe. Determining whether it’s the right choice in a given case requires you to balance its advantages and disadvantages in light of the other choices which may also help you achieve your goals.