Let’s face it: Death can be a pain in the neck. Regardless of your beliefs about the hereafter (or lack thereof), your family faces legal and financial challenges. Maybe you’ve heard that living trusts could save them time, money, and headaches by bypassing probate. Yet that’s not the entire story. Estate planning can be more complex than you may think, but this guide explains how living trusts and wills work with the probate process.
A Quick Overview of Living Trusts
Dummies explains that you need to create a legal document to set up a living trust. By creating that trust, you become the grantor. While you’re alive and of sound mind, you can place assets into your trust. Most types of assets qualify for inclusion in a living trust:
- Real estate
- Stocks and other securities
- Business interests
- Intellectual property
- Antiques and valuables
- Precious metals
- Digital assets
With that said, some kinds of assets should not go into a trust. The Balance mentions retirement accounts along with health and medical savings accounts. It's also wise to leave out life insurance and motor vehicles. Uniform transfers or gifts to minors should have a successor custodian in case the primary one dies.
Why People Create Living Trusts
When someone dies, the local probate court oversees asset allocation and debt repayment from that person’s estate. If there’s a will involved, the court must verify its validity. Investopedia adds that the probate judge must also name an executor to handle the estate.
How long does probate take? That depends on your jurisdiction and the complexity of your estate. Most people should expect probate to last anywhere from eight months to two years. That’s why they may set up living trusts – to bypass this potentially long and costly process.
Living trusts do not go through probate thanks to a legal technicality. Nolo points out that a trust grantor doesn’t legally own the trust’s assets – the trust itself does. Grantors can also be trustees, allowing them to manage those assets. Most people name successor trustees to handle asset distribution after their deaths.
Why You Still Need a Will
So if you have a living trust without a will, you’re still good, right? Not exactly. Nolo clarifies that you still need a will along with your living trust. Your will can perform important functions that a living trust cannot do. For instance, you can name guardians for your minor children and forgive any debts owed to your estate. Even if most of your property is in a trust, a bare-bones will handles your estate’s other legal and financial issues.
Other situations can call for having a will with a living trust. Trust beneficiaries safely receive their assets, but what about their spouses? One Marketwatch reader worried about in-laws attempting to claim trust property and assets. The person’s wife had received the trust from her late father. But they had no children together She also hadn’t drafted a will or named her spouse as successor trustee.
Finance expert Quentin Fottrell offered advice that can help married couples without children. Even with a living trust, a will ensures that a deceased person’s wishes are carried out. Probate court may still get involved, but the process could be much shorter with a will than without. The Balance adds that a no-contest clause may discourage would-be challengers from tying up a will in probate court.
Protecting Your Loved Ones’ Futures
Whether you’re married or not, taking financial matters for granted isn’t wise. Failing to create an estate plan leads to major headaches for your loved ones. Living trusts may speed up asset transfers, but your will ties up loose ends and spells out key details. Depending on your financial needs, both tools can provide peace of mind after you’re gone.
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