What Is A Living Trust And Is It Right For You?

by David Bakke

Another product that is widely mentioned when people talk about retirement and estate planning is a living trust. A living trust is a trust created during a person’s lifetime to either save money on taxes or to set up long-term property management. The main benefit of having living trust is to avoid the probate process but may also be used to maintain financial privacy and regulate your assets should you become incapacitated.

What Does It Do?

Basically, a living trust allows you to pass money on to your heirs without going through the time-consuming and expensive process of probate. It is revocable and can be changed at any time. Also, depending on the size of your estate, you can save significant amounts of money by avoiding the probate process.

The Negatives

Keep in mind though, that there are some negative aspects to having a living trust. The beneficiaries of a living trust will not save on any inheritance or estate taxes. Setting up a living trust can be time-consuming, expensive, and it is an upfront cost. These documents are generally much more expensive to prepare than simple wills. Living trusts also need to be maintained. So there are maintenance costs as well. The fee is usually a one-time fee based on the size of the trust, usually running between 1% and 4% of the estate. Interestingly enough, this fee will also be assessed for anyone dying without a will or a living trust.

There is an estate tax exemption, which is a separate issue in and of itself. Keep in mind though that married couples can double the estate tax exemption amount by adding a formula clause to their living trust.

Is It Right For You?

So we’ve outlined what a living trust is and gone into some of the basic pros and cons to having one. It is a complex thing so these positives and negatives are not all-inclusive lists, just the highlights.

Regardless, now the question is…Is a living trust right for you? As it turns out, the answer may not be an absolute “yes”. Actually, I’d call the answer more like “It depends”. There are several factors you should evaluate before making a choice on going with living trust or not.

You’re Age

Put simply, if you are under the age of 55 or so, in good health, and are of moderate means, there is not much point in worrying about a living will just yet.  A healthy 45 year-old just simply will not have to worry about probate for many years.  At this age, a standard will should suffice in the event of your untimely death.

Also, in the recent past a variety of other probate avoidance tools have come into play, which may make the whole issue moot.

You’re Wealth

Again, I may be oversimplifying, but the richer you are, the more sense it may make to consider a living trust. Someone who is worth a million dollars may be able to save his inheritors a lot more money than someone who is only worth $200,000.

But it also depends on the type of assets you own. If you own a small business, even if its net worth is not substantial, you may still want to consider a living trust. It would be hard to run a small business that is tied up in probate.


And finally, if you are married and planning to leave the bulk of your assets to your spouse in the event of your death, you probably don’t need to worry about establishing a living trust. The probate rules and fess are less stringent for surviving spouses.

So there you go. There are a few things to consider before jumping in and establishing living trust. As I said, it is normally a time-consuming and expensive procedure, so consider all factors before making your decision. It can be a great tool to have at the time of your death; it’s just a matter of figuring out if it’s right for you and when.

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