Why a Living Trust May Be Right for You

by: Smith and Howard Wealth Management

As uncomfortable as it is to think about death, it is very important that we each take time to consider the effect our passing will have on our family and other loved ones. We have a responsibility to do certain things now – while we are able – to take some of the logistical hardship and guesswork out of the hands of our loved ones. Our planning allows them the space and opportunity to grieve without the worry of time-consuming legal matters.

A Will Alone Isn’t Always the Answer

Among the difficult issues that families face when addressing the passing of a loved one is the distribution of the deceased’s estate. This can be particularly burdensome when an estate is complex, such as one that holds multiple properties across state lines or in states with complex, expensive or strict probate laws. One way to ease this burden is through the establishment of a living trust. A living trust is a legal agreement that is created during your lifetime and funded with assets (property, investments, etc.) that you wish to transfer to your loved ones at death. This creates efficiencies in distribution of your estate and also takes the guesswork out of your intentions for your beneficiaries.

Creating a Living Trust

A living trust is drafted with the assistance of your attorney. During the drafting of the trust document you, the grantor, will appoint a trustee (yourself or a trusted advisor) who has power to manage the assets in the trust. You will also name a beneficiary (or beneficiaries) of the assets.  The assets may pass outright or continue to be held in trust depending on your wishes.  We are typically advising clients to leave the assets in trust to protect them from possible claims of creditors or from being split in divorce proceedings.  When you die, the assets held in the living trust do not have to go through the probate process (the legal process of validating a will), which means that your beneficiaries can quickly take action on transferring ownership or disposing of them.

Recently, we had a family come to us after the passing of their loved one. The deceased had a complex written will that included property held in two states, which mandated that the estate go through probate in each state where the property was held.  Depending on the situation and the states where assets are owned, the probate process can be a time-consuming and costly procedure that causes hardship on the family. In our clients’ situation, they had to immediately spend time and energy on the probate process – not once, but twice. The Smith and Howard Wealth Management team worked with an estate planning attorney to establish living trusts for the beneficiaries so this problem would not face future beneficiaries.

It is important to understand that there are two types of living trusts: revocable and irrevocable.  A revocable trust is one in which you retain a degree of control over the trust and the assets within it (i.e. if you name yourself as the trustee). This usually necessitates reserving the right to change the terms of the trust, the trustee and the beneficiary (ies). You also reserve the right to have control over any income that the trust may generate. An irrevocable trust is the opposite. In this type of trust, any assets that you transfer have been removed from your estate; once the transfer is completed, they are completely owned by the trust and the trustee has full discretion over the assets.  Irrevocable trusts are used as lifetime gifting vehicles.

Additional Benefits of a Living Trust

In addition to creating a streamlined approach, a living trust also offer privacy. Unlike a will, a living trust is not a matter of public record when you, the grantor, pass away and the assets within the trust are being distributed to your beneficiary (ies). This can be appealing for several reasons, one of which being that it reduces the risk of having the distribution of your assets contested. Disputes regarding asset transfers are more likely to happen during a will transfer, in part because of the public probate process. Our financial circumstances are private matters; a living trust keeps it that way.

A final benefit of having a living trust is the ability to manage your assets in the event you are incapacitated. If something were to happen to you during your lifetime that left you physically and mentally unable to manage the assets in your trust, provisions can be set up in your living trust to have an acting agent make decisions for you in your absence.

Like a will, a living trust is a mechanism in which an individual can manage their affairs for those who survive them when they pass. However, it is important to know the differences between both a will and a living trust before any concrete decisions are made regarding the permanent placement of assets.

Wills and Living Trusts: Is it Either/Or?

One of the frequent questions that we are asked is: If I have a will, should I also create a living trust? The answer depends on each person’s situation. The Smith and Howard Wealth Management team walks our clients through a discussion of their assets, their wishes and their beneficiaries to help them make the best decision for their situation.

Although living trusts offer many benefits to some, there are certain types of situations in which a living trust may not be the best fit. Living trusts can be a little more expensive to set up; those considering the option can expect the cost to be affected by measures taken to create the trust and by whether retitling of assets in order to transfer them to the trust presents a reasonable addition of time and expense. Typically, you will also have a will in place to capture any assets that have not been properly titled in the name of the trust.  Probate in Georgia is fairly straightforward, unlike neighboring states of Florida and North Carolina where many own second homes.  Accordingly, if all of your assets are in Georgia you will most likely be fine with a Georgia will.

Next Steps

In essence, a living trust is a private orderly way to manage your assets during your lifetime and when you pass away. You have peace of mind, knowing that your assets will be handled and distributed without the courts being involved in the manner in which you intended.

While we do not draft living trusts, we do work with our clients and their attorneys to ensure that the trust and the will include our clients’ current financial situation – including investments and property – and that their wishes are fully understood and considered in the final execution of their estate documents. Please call any member of our wealth management team (404-874-6244) for more information.