Last week, we covered how it works when you create a trust through your will. This week, I'll show you how a trust created during your lifetime (called a revocable living trust) functions differently, what your family experiences when you've set up a living trust, and how to decide which approach truly fits your situation.
As a quick refresher, a “testamentary trust” is created in your will and only comes into existence after your estate goes through probate. As a result, your family could wait many months, and sometimes even years, while the court oversees the process of probating your will and establishing your trust. If your objective is to keep your family out of court, and have total privacy after your incapacity or death, a testamentary trust won't accomplish that.
A living trust, created during your life, and properly “funded” will keep your family out of court, provide the privacy you likely want for them, and generally make things a lot easier for the people you love, when something happens to you.
In this article, I'll explain how living trusts provide those benefits, help you weigh the tradeoffs between the two approaches, and explain how to be your own best advisor, and make informed decisions.
How a Living Trust Works
A living trust, often called a revocable living trust, is created and funded while you're living and have legal capacity to make decisions. You transfer ownership of your assets into the trust now, naming yourself as the initial trustee. This means you maintain complete control during your lifetime. You can buy property, sell property, change investments, and manage everything exactly as you did before. The trust doesn't restrict you in any way.
The trust agreement includes detailed instructions about what happens to trust assets when you die or if you become incapacitated. Within the trust agreement, you will name a successor trustee, the person who will take over management of the trust assets when you can no longer serve as trustee. You specify who receives trust assets, when they receive them, and under what conditions. All the protective provisions you might include in a testamentary trust can be included in a living trust.
Here's the crucial distinction between a living trust and a testamentary trust: when you die or if you become incapacitated and cannot make decisions for yourself, the living trust already exists and already owns your assets. Your successor trustee doesn't need court permission to begin managing trust property. There's no probate filing. No waiting for court approval. No public disclosure of your assets or beneficiaries. The successor trustee simply follows the instructions you've provided in the trust agreement.
This means your family avoids the delay, expense, and public exposure of probate court. Your trustee can immediately pay bills, manage property, and begin distributing assets to your beneficiaries according to your timeline. If you've included provisions protecting your children's inheritance until they reach a certain age, those protections start working immediately. Your family gets the benefit of your planning right when they need it most.
The living trust also provides protection if you become incapacitated before you die. If illness, injury, or cognitive decline leaves you unable to manage your own affairs, your successor trustee can step in and handle things for you without requiring your family to go to court for guardianship proceedings. Your chosen successor simply steps into the role you've defined for them.
However - and this is critically important - living trusts only control assets that are actually transferred into the trust. In the world of estate planning lawyers, we call this "funding" the trust, and it's a crucial step many people overlook, even when working with a lawyer. If you create a living trust but never change the title on your house or retitle your bank accounts, then those assets aren't protected by the trust. When you die, those assets will need to go through probate. The trust can only control what it owns.
This is why working with a lawyer who has systems and processes set up specifically for estate planning, and ideally Life & Legacy Planning®, is so important. Creating a trust agreement is just the first step, and needs to be part of a full plan that covers all of your assets, ensures all of your assets are titled properly, all beneficiary designations are clarified and updated, and you are clear on how to keep everything up to date throughout the rest of your life. We have processes in our office for supporting just that.
Now that you understand how both types of trusts function, the question becomes: which one makes sense for your specific situation?
Understanding the Real Tradeoffs
Why would anyone choose a testamentary trust if living trusts offer so many advantages? The main reason comes down to upfront effort and cost. Creating a testamentary trust is usually less expensive initially because you're just adding provisions to your will. You don't have to transfer assets into a trust during your lifetime. All that happens in the probate process after you die.
For some, the cost of probate might not be substantial enough to justify the upfront expense of creating and funding a living trust. Others aren’t concerned about the probate process at all.
But consider the hidden costs your family will face. Even a simple probate proceeding typically costs several thousand dollars in legal fees and court costs. The process usually takes at least months, and often years. Your family must handle this while they're grieving, gathering documents, communicating with attorneys, and dealing with ongoing stress.
Compare that to the experience with a properly funded living trust. Your family meets with your successor trustee, who already knows what you wanted. They work together to handle immediate needs, notify beneficiaries, and distribute assets according to your wishes. The process is private, usually faster, and doesn't require court oversight. For most families, this experience is far less stressful and ultimately less expensive than probate.
Consider your family dynamics as well. If you have family members who might contest your wishes, the public nature of probate can fuel disputes. Anyone can access probate files and see what you left to whom. A living trust keeps everything private, which can help minimize conflict.
In addition, consider your specific assets and their complexity. If you own real estate in multiple states, you're facing probate proceedings in each state where you own property. A living trust holding all your real estate avoids this entirely. If you own a business, probate delays can harm business operations. A living trust allows seamless continuation of business management.
Understanding these tradeoffs helps clarify which approach makes sense for your situation. But you don't have to figure this out alone. Work with an experienced attorney - who’s also your trusted advisor - who can walk you through your specific circumstances so you’re confident you’re doing the right thing by those you love.
How I Help You Create a Plan That Actually Works
As a Personal Family Lawyer® Firm, we don't push everyone toward one type of trust. Instead, we start by helping you understand what will actually happen if you become incapacitated or when you die, based on the specifics of your family dynamics and your assets. We’ll walk you through the real costs, the real timeline, and the real experience your loved ones will face. Then we'll help you evaluate what matters most to you and make an informed decision that fits your desires and budget.
If a living trust makes sense for your situation, we won’t just create the document and send you on your way. We'll help you fund the trust properly, making sure assets are retitled correctly and nothing is overlooked. Then, we’ll make sure your plan stays up to date throughout your lifetime, and you have support when you need it throughout life.
Most importantly, we'll be there for your family when you're gone or if you become incapacitated. That ongoing relationship makes all the difference. Your loved ones won't be left alone trying to figure out what to do. They'll have a trusted advisor who knows you, knows your wishes, and can guide them when you can’t.
If you’d like this kind of care for yourself and the people you love, use this link to schedule a complimentary 15-minute discovery call to get started today.
This article is a service of a Personal Family Lawyer Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy PlanningⓇ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning Session.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.
Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.