This is a question I get pretty regularly and one that I think really deserves some background explanation before answering.
First of all, when someone asks me if they need a “living trust,” I’m never quite sure if they are asking about a device similar to a will that would function to pass their belongings on to their loved ones, or if they are referring to an instrument that is used to help make medical decisions (commonly referred to as a “living will” or “advance health-care directive”). I’ve heard the term used for both purposes, but as an estate planner, the term “living trust” means an instrument that is created during your life (as opposed to at your death) that holds the legal title to your property and is often used to pass on your belongings to your loved ones at your death.
Estate planners often set up living trusts for their clients because probate can be avoided by setting up a living trust and transferring all of your property to it. Probate can be an expensive, time-consuming process (usually a minimum of 6 months) that an estate must go through in order to pass title from a deceased person to his or her heirs. I like to describe the probate process to my clients as follows:
Let’s pretend you own a nice house out in the country where you like to vacation on the weekends. At some point in the future, barring some kind of spectacular discoveries in medicine, you will die, and those of us left behind will need to figure out who’s going to own your country home after your death.
The first place we’re going to look to see who should be the next owner will be the warranty deed you received when you purchased your home. If you happened to have owned the home with someone else as a “joint tenant with rights of survivorship,” then that person will now be the sole owner of your home. But if you are listed as the sole owner, we have to begin to look elsewhere to know what to do.
The second place we’re going to look is to see if you had a will. If you had a will drawn up before you passed, and it says you want to leave your house to your son, Bobby, and your daughter, Sally, then they are likely the ones who are supposed to receive your country home. Unfortunately though, Bobby and Sally must first take your will to the courthouse and prove to the court (1) that the will they have is indeed your will, (2) that the will says they should receive the house, and (3) that nobody else (especially creditors) have any other claims to your country home. This process is called a “testate probate” with “testate” simply meaning you died with a will. The probate process is the only way for Bobby and Sally to receive good title to the property which is important to allow them to sell the property or purchase insurance or even be listed on the property tax records.
What if you don’t have a will? Well, again we have to go back to the courthouse and tell the judge you don’t have a will and let him determine who now owns your home. He’s going to ask us to tell him who all of your heirs are (spouse, children, siblings, parents, nieces and nephews, etc.) and who all of your creditors are, and then he’s going to look to the Mississippi Code to tell him who is supposed to inherit your property. This process is called an “intestate probate” with “intestate” simply meaning you died without a will. Again, this type of probate is the only way for your heirs to receive good title to your property.
So you’re asking what in the world all of this has to do with a living trust, right? Well, the reason we had to go through the probate process in the situations above is because you died as the sole owner of the property. If instead we had transferred your country house to a living trust before you died, then the trust becomes the owner of the house. Your death doesn’t mean anything because you are no longer the owner. The trust is the owner, and it can’t die unless and until we’re ready to terminate it.
When an estate planner drafts a living trust for their client, they often include provisions telling the trustee (who is the person who does the business of the trust) what to do with the property when you die. A trust is a legal entity that can pass property to other persons without court approval just like you and I can. Therefore, at your death, the trustee of your trust can give the property to your heirs without going through the expensive and time-consuming probate process!
Now that we have the background, we can begin to answer our question as to whether you need a living trust. A living trust is an excellent option for many people, but is not the best option for everybody. Even though trusts can save a lot of money and time over the long-term, they are more expensive and time-consuming to set up than just drafting a will would be. I do not often recommend a trust for clients who are still in the stage of their lives where they are still acquiring more assets that would require transfer to the trust. However, they are perfect for elderly individuals and couples who are pretty well-settled. On the other hand, there are numerous instances where a living trust is very appropriate for even a very young couple or inappropriate for an elderly individual so it’s always best to consult with an experienced estate planning attorney before making that decision.