Why You Might Not Need a Living Trust

One of the most common questions about estate planning Nolo encounters is whether making a will is enough or whether it's smarter to create a living trust to avoid probate. Not surprisingly, the answer is, "It depends." Some people need a living trust immediately, others will never need one, and most of us fall somewhere in the middle.

Avoiding Probate With a Living Trust

First things first. Living trusts help you avoid probate, but why is avoiding probate necessary? Probate is the court process through which a person's property is inventoried and distributed after death. Many people aim to avoid probate because it's time-consuming and expensive. (To learn more about probate, read Why Avoid Probate? and Probate FAQ.)

There are a growing number of ways to transfer assets to inheritors without probate within weeks or, at most, months of death. These include making gifts before death, adding a pay-on-death designation to a bank account, holding your house in joint tenancy with right of survivorship with your spouse or partner, and naming a beneficiary for life insurance and retirement accounts. (For more on these methods, see How to Avoid Probate.)

But only the living trust can be used for all types of property while offering the broad planning flexibility of a will. With a living trust, for example, you can name alternate beneficiaries to inherit property if your primary beneficiary dies before you do. That's something you can't accomplish with joint tenancy or a pay-on-death bank account.

Drawbacks to Living Trusts

Living trusts do have a downside. Compared to wills, living trusts are considerably more time-consuming to establish, involve more ongoing maintenance, and are more trouble to modify. A lawyer-drafted trust typically costs more than a thousand dollars, though the cost will shrink dramatically if you use a self-help tool to make your own trust. Also, you'll still need a simple will, as a backup device, even if you create a trust.

Is a Living Trust Right for You?

These drawbacks are outweighed by the benefits for people who have large estates and for those who are likely to die in the next ten years or so. To decide if you need a living trust, consider these factors:

Do You Have Young Children?

If you don't have children or your children are adults, then you might not need a trust. If you have young children, a living trust might be a good idea for you. If you don't have a trust and both you and your children's other parent die when the children are still young, the court will appoint an adult to manage the assets you left to your children. This person generally will manage your children's assets with court supervision until they reach 18 years old. If you have a trust, a trustee will manage your children's assets without the hassle and expense of probate court supervision

Another advantage of a trust is the ability to delay your children's inheritance until they're older than 18. If you don't have a trust, the probate court generally will allow your children to have their full inheritance when they reach 18. Unfortunately, many young adults might not be mature enough to handle an inheritance. They might burn through their money quickly with poor spending and investment choices. With a trust, you can delay your children's full inheritance until an older age—like 25 or 30—while still having the trust provide for their living and education expenses until they reach that age.

How Old Are You?

Living trusts often don't make sense for middle-income people without young children who are in decent health and younger than 55 or 60. Remember, a living trust does nothing for you during your life. It follows that there is usually little reason for a 45-year-old to worry about probate costs for many years. In the meantime, a serviceable will, which is easier to establish and live with, will do a fine job of transferring your property to your loved ones in the highly unlikely event that you die without warning.

Another reason why it makes little sense for a healthy younger person of moderate means to worry about probate avoidance is that easy-to-use probate-avoidance techniques, such as being able to name a beneficiary to inherit securities free of probate, have gained wide acceptance.

If you're 70 or older or have health concerns, you might want a trust. A trust can be beneficial because it can protect your assets if you become incapacitated—unlike a will. If you have a trust, you can set it up to allow a trustee to manage your trust assets if you become incapacitated.

How Rich Are You?

Another major factor in deciding whether or not to create a living trust is wealth. At the risk of oversimplifying, the wealthier you are, the more you can save for your inheritors by avoiding probate. For example, a 45-year-old with $10 million might conclude it's not too soon to think about probate avoidance, just in case. A 45-year-old with $300,000 might sensibly decide to wait many years before making a trust.

What kinds of assets you own is significant, too. Owning a small business or other assets that you don't want tied up during probate might push you to create a living trust at a younger age. Even if there's only a small chance that you'll die soon, you don't want to risk making your executor report to a judge for a year or more if you die unexpectedly.

If you have significant wealth and have concerns about creditors or estate taxes, a revocable living trust won't do you any good. Instead, you should look into establishing an irrevocable trust. Irrevocable trusts are complicated, and it's usually best to work with an attorney to establish one.

Are You Married?

If you're married, and you and your spouse plan to leave the bulk of your property to one another, there is less reason to obsess about avoiding probate at an early age. If, like many couples, you own your big assets together, probate won't be necessary for those assets—unless you both die at the same time. And for other property, most states let surviving spouses use expedited probate procedures that are faster and cheaper than standard probate.

Next Steps

If you determine that you would benefit from having a living trust, you can make one today with Nolo's Quicken WillMaker & Trust. Or check out Make Your Own Living Trust, by Denis Clifford (Nolo), which explains how to create a trust, transfer property to the trust, and amend or revoke the trust at any time. And to see everything Nolo has to offer when it comes to planning your estate, visit our Wills, Trusts & Estates Center.