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Is a living trust worth it?

A living trust, also known as a revocable trust, can be a smart addition to your end-of-life planning. Find out what it is and why you should consider one.

We get it: No one wants to think about their own death. But getting documents and plans in place now is a smart strategy. While you’re not alone in putting off the task—Caring.com reports that only 42% of Americans have estate planning documents like a will or living trust in place —making sure that you have these documents handled now will give you and your loved ones’ peace of mind.

While estate planning can seem overwhelming, knowing the various types of products available to you can help you figure out the best strategy for you, your assets, and, most importantly, your family. One of those options is a revocable trust (also known as a living trust.) While most people understand the basic concept of a will, they are usually less familiar with living trusts.

How is a living trust different from a will? Do you need both? Here, a basic overview of a living trust so you can move forward with your estate planning (and finally check that to-do off the list!)

Important terms to understand

When learning about a living trust, you should understand a few terms:

  1. Settlor (also sometimes called a trustor, grantor or donor), which is the person with the assets. They are able to access the assets in the trust during their lives.
  2. Trustee is the person responsible for the assets and serves as a representative for the settlor to ensure the beneficiaries receive the assets. This person can buy, sell, transfer, give away, or bequeath the assets at his or her discretion and based on the guidance in the trust.
  3. Beneficiary is the person or people receiving the assets.

What is a revocable living trust?

A revocable living trust is a popular estate planning tool that you can use to determine who will get your assets when you die. Assets within a trust are commonly things like a house, life insurance, retirement plans and more.

The “living” and “revocable” in this trust’s name refer to the fact that you can change them as your circumstances or wishes change. You can also access them in your lifetime.

While you are alive, you maintain control over the assets in the trust. Upon your death, the assets in your trust go to the beneficiaries you named, without going through probate court.

While a living trust is an estate planning tool like a will, it gives you more flexibility to decide what happens to your money and other assets during your lifetime and afterward.

Additionally, living trusts are usually still subject to estate taxes. Those looking for a trust with estate tax benefits should ask a lawyer about an irrevocable one. An irrevocable trust can have some tax benefits, but you lose access to the assets once they are placed in the trust. Therefore, if you choose an irrevocable trust, you have to be comfortable with the fact that anything you place in it is now in the care of the trust for your beneficiaries.

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Four advantages of a living trust

Many individuals create a living trust in addition to a will as a way to safeguard assets, and to help make the transition of assets as smooth as possible for heirs. Here are three advantages to consider when creating an end-of-life plan.

#1 A living trust helps your beneficiary avoid probate

A key benefit of a living trust is that it helps your heirs avoid probate court and its associated expense and inconvenience. Probate is a court proceeding where your assets are distributed according to your wishes. Even with a will, beneficiaries often need to go to probate court to ensure that it is executed correctly. During the probate process, an executor pays off debts and any estate taxes that are owed. It’s also a time when family members or other beneficiaries can challenge the will.

With a living trust, since the trust technically owns your assets, a probate court does not need to disperse them when you die, which often means a faster distribution of your assets to heirs.

#2 A living trust may save your loved ones’ money

Although a living trust costs more to set up, it could save your loved ones money in the long run. Because the distribution of assets will not go through probate, your beneficiary will not incur costs associated with typical inheritances.

That said, for a simple, uncontested will, probate costs are usually low. Costs can creep up if out-of-state properties are involved, or someone contests the designations in the will. For people with simple estate plans, a living trust may not offer a large financial benefit.

#3 A living trust offers more privacy

By avoiding probate, your trust agreement remains a private document. It is not a public record for anyone to see.  A will, on the other hand, eventually becomes public record. A trust keeps the details about your assets and beneficiaries a private family matter.

#4 A living trust can help plan for if you can no longer oversee assets yourself

A living trust allows you to plan for the possibility of a time when you may not be able to oversee your estate yourself, potentially due to illness, memory disorder, or dementia. You can name a trustee who would take over the trust and distribute your assets if you become unable to manage them yourself.

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What’s the difference between a trust and will?

A will and living trust serve two distinctly different purposes. While everyone really should have a will, not everyone needs a living trust. However, some people may find that having both is beneficial. Here, what each document is, and what purpose it serves.

Living trust

  • A living trust goes into effect as soon as you create it and can be used while living
  • A living trust covers property that has been transferred into the trust. For a property to be included, it must be put in the name of the trust.
  • Once named in the trust, properties with joint ownership can be included as an asset
  • The trust and its assets pass to the beneficiary outside of probate. A court does not need to oversee the process, which can save time and money.
  • Setting up a trust can cost anywhere from $1,000 to $3,000 depending on attorney billing rates and where you live
  • A living trust does not include provisions to name a guardian or to specify directives and funeral wishes

Last will and testament

  • A will takes effect after you die
  • You can name a guardian for children in your will
  • You can specify funeral arrangements in your will
  • A will covers assets that are only in your name
  • Property held in joint tenancy or in a trust cannot be disposed of in a will
  • A will passes through probate, which means a court ensures it is valid and oversees the administration
  • Setting up a will can cost about $60 for an online service to a few hundred dollars for an attorney to complete

So, do you need a will or a living trust?

For many, the answer could be both. A trust is not a replacement for a will and vice versa. Ultimately, it’s a personal decision you must make based on how you want to leave your legacy.

Unlike a will, a trust cannot designate a guardian for your child, an executor, or instructions for how your debts or taxes should be paid. Typically, if you have a living trust, you also need a will.

While a living trust is more expensive and complex than a will to establish, forming a trust can be a great way to protect your family’s assets. Together, a trust and a will can guarantee that your wishes are carried out while you’re alive and after you die.

But it’s important to know the limits of a trust, and how to best create one. For example, a living trust can only control the assets that you place inside it. You will need to re-deed property, change beneficiaries on all accounts—life insurance, investments, retirements, and so on—and change ownership documents to reflect the living trust as the owner or recipient. If you don’t transfer the assets to the trust, your loved ones may still find themselves facing probate court.

A living trust may not protect your assets from creditors. Creditors can still petition the courts to use assets from a trust to settle outstanding debts at the time of your death.

If you think a trust might be a smart estate planning tool for you, speak with a lawyer who specializes in estate planning about what is best for you.

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Hank Coleman is the founder and publisher of Money Q&A, a personal finance blog that focuses primarily on investing and retirement planning. Hank has a Masters in Finance from the University of Maryland and a Certificate of Personal Financial Planning from Kansas State University.

The information provided is not written or intended as specific tax or legal advice. Haven Life is not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Opinions expressed by the author are their own and do not necessarily represent the views of Haven Life.

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About Hank Coleman

Hank Coleman is the founder of several popular personal finance sites such as Own The Dollar, Military Money Might, Money Q&A, and more. He is an entrepreneur and freelance writer specifically focusing on personal finance topics such as savings, investing, retirement planning and insurance. Hank's writing has been featured across a number of sites, including AOL Daily Finance, The Motley FoolFive Cent NickelSeeking Alpha, Military.com, Fox Business, Discover Bank, GoBankingRates.com, and many others. Hank is a finance writer, financial planner and self-proclaimed investing junkie. He has a Masters Degree in Finance and a Graduate Certificate in Financial Planning. Be sure to follow him on Twitter @MoneyQandA and on his blog, Money Q&A.

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

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Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

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