Deciding If You Need A Living Trust

Ads are sometimes aired that give the impression that everyone should set up a living trust. These legal documents are sometimes marketed as a one size-fits-all replacement for a will. This is not exactly correct, as in some cases a will may be the better option for passing on assets upon death of the owner.

Despite the seeming attractiveness of this option, it is not the ideal instrument for everyone. There are many factors to be taken into consideration to determine whether or not this is the way to go.

How to Know if You Need This Protection?

This issue calls for serious thought, and often, professional consultation. The first step in deciding is to understand the main benefits of this instrument. For many people, the most important of these are:

* The avoidance of probate in a court of law

* What happens if you become incapacitated?

* How you feel about privacy

Knowing the Drawbacks

To make a truly informed decision as to whether or not to have this document, it helps to know what's not so great about them. Unlike a will, they can be time consuming to set up. Depending on the assets to be passed on to heirs or beneficiaries it may not be worth the effort involved.

Wills are generally must cheaper to put in place. Again, unless the assets are significant the cost needed to establish this protection could be put to better use. Plus, having a back-up will is normally recommended just in case something was not transferred to the trust.

This type of will is known as a pour-over will. It is used to transfer assets to the trustee on the death of the person who set it up.

Factors to Consider

The main factors to help decide whether or not to set up a trust are:

Age

Healthy people under the age of 60 years do not generally need to set one up. Since for the most part, they usually do not have to worry about dying for quite a few years, a will is adequate. Except in the event that you become unable to manage your own affairs, then there is little benefit for younger people. If the person has a substantial estate it may make sense.

Marital Status

For married couples, especially younger ones who plan on leaving their assets to the other, there is no reason to set this up. With wills, when assets are owned jointly, it is also rare that probate proceedings become necessary. If assets are held jointly, they can also escape probate if they are stated in a will as being "Transferred by Death."

Size and Value of Assets

Years ago, living trusts were more often than not recommended to people who had assets valuing more than one million dollars. Since avoiding probate procedures is a prime reason for establishing this estate planning document, fewer assets mean lower probate cost. As such, for lower or middle income people this type of document may not be needed.

People with lots of assets who doubt their beneficiaries' money management skills can use this instrument as a means of protection. With life expectancy rising, if there is reason to fear mental incapacity later in life, then this document is worth considering.

As can be seen, a living trust is more useful for older people with large asset bases. It is also worth noting that it is possible to change either legal document as your circumstances change. In addition, many states are making probate easier and cheaper so that the process will be less onerous.