To incite violence among estate planners, rise up and shout, “Living trusts!” In the melee that follows, partisans invariably include attorneys for, attorneys against, and more than a few illicit promoters. As an antidote to that acrimony, here are some quiet thoughts on the subject:
A trust is an arrangement to manage property. A grantor contributes the property, a trustee manages it, and the beneficiary enjoys it.
What is the difference between a testamentary trust and a living trust?
Testamentary trusts are created under a will, and are funded after the testator, the person who made the will, dies and the will is admitted to probate.
Living trusts are funded while the grantor is alive, and so the grantor may also be the trustee and the beneficiary.
What are the benefits of a living trust?
A living trust can name an alternate beneficiary on the first beneficiary’s death, avoiding probate. A living trust offers privacy because assets and beneficiaries need not become public record. Living trusts mitigate will contests—disappointed heirs can still sue, but at least the grantor is alive to defend the trust and disinherit litigants. Living trusts provide continuity of management by naming alternate trustees after the first trustee resigns or becomes disabled.
What are the disadvantages of a living trust?
Probate assets must be retitled to pass under a living trust, unlike a will. When done properly, a living trust accelerates and shifts much of the burden of probate away from the next generation and towards the client. This is most attractive to older clients, who have already had to care for aging parents, and who remember well the disruption to their own lives. They happily take on the extra work now to shield their children or other caregivers later. However, for most clients, funding a trust is more work than they care to do. In Texas, probate is so inexpensive that it is usually cheaper to embrace probate than it is to avoid it. Unless disability is a concern, a living trust may not offer Texas residents significant benefits.
Is the additional expense worth it?
The answer depends on your assets and where you live. In Texas, a living trust tends to be more expensive than a will and probate. The opposite is true in California and other states without independent administration. However, even for Texas residents, a living trust can be cost-effective when disability is imminent or if assets include out-of-state property or oil and gas interests.