Trusts are amazing estate planning tools.

They can be used for tax planning, asset protection, Medicaid planning, business succession, and more (though each of those options has significant downsides).

When most people talk about trusts, however, they are referring to living trusts.

You might also hear this type of document referred to as a revocable living trust or a revocable trust or an inter vivos trust or a bunch of other names. They all generally mean the same thing.

Contrary to popular belief, trusts are NOT just for wealthy people.

In fact, because of its numerous advantages and its flexibility, the living trust has become one of the most popular — and, in my opinion, one of the best — estate planning tools available.

Here are 8 reasons why a revocable living trust might be right for you:

1. A living trust can eliminate the need for probate.

Everyone wants to avoid probate, if possible.

It’s expensive, time consuming, difficult to navigate, and often stressful and contentious.

There is (unfortunately) a widespread belief that having a Last Will and Testament means your family won’t need to probate your estate. But a Will must be probated after your death to be effective!

In other words: If you want to avoid probate, a Will is not the way to go.

This is one of the most important differences between a will and a trust.

A fully funded trust can eliminate the need for probate by providing for the transfer of assets after your death without requiring court approval.

Despite the advantage that trusts offer, many people avoid them because of the cost.

An estate plan that includes a living trust prepared by a qualified estate planning attorney typically costs, on average, around $3,000 (not including any costs that may be necessary).

A simple will, on the other hand, is usually less than $1,000.

In a vacuum, those numbers can make a Last Will and Testament look more appealing. However, if cost is your deciding factor in estate planning, then you should consider the cost of not having a trust.

Probating a basic estate in Oklahoma commonly costs at least $4,000 to $5,000.

And that’s just for attorney’s fees.

On top of that, an estate generally also has to pay court costs, filing fees, publication fees, postage and/or process server fees, and a personal representative’s fee that can be many thousands of dollars.

These attorney’s fees and costs increase astronomically if the probate involves creditor issues, beneficiary objections, complicated assets to administer, or any other issue that increases the time required.

I regularly see attorneys with $10,000+ in fees for a probate.

So that $500 Last Will and Testament can ultimately cost you twice as much as a living trust.

By setting up a trust, you are saving your family or other beneficiaries from having to make those expenses after your death, thereby maximizing the value of your estate.

2. Nominating a guardian for minor children.

What happens to your minor children if you die or become incapacitated?

This is a crucial question for young families creating an estate plan.

Generally speaking, someone will need to obtain guardianship over (or adopt) your children in the event you die or become incapacitated while they are minors.

Even if your family is not contentious, things can change when the welfare of a child is at stake.

Multiple family members may feel that they have a child’s best interests at heart and, as a result, may end up fighting in court over who should be appointed the child’s guardian.

Nobody ever expects this to happen in their family, yet it still happens.

To greatly reduce the possibility of a long and contested guardianship, you can use your living trust to nominate a guardian for your minor children.

You can also list alternates to serve if your first preference is unable or unwilling to do so.

Related post: What is a Nomination of Guardian?

Although the person(s) you nominate as guardian will still need to be appointed by a court, as long as they are willing and legally able to serve, your nomination will allow the court to appoint them.

Making sure your assets go to the right people is important.

But is anything more important than ensuring your children are taken care of?

3. Controlling distribution to beneficiaries.

In addition to deciding who gets your estate after your death, a trust allows you to decide how or under what conditions your beneficiaries will receive their inheritance.

Other estate planning options don’t offer this advantage.

For instance, if you merely have a Last Will and Testament, your beneficiaries will be entitled to their share of the estate as soon as the judge orders distribution (provided they are 18).

But could that be a problem for your beneficiaries? Consider these common scenarios:

Minor beneficiaries. If any of your potential beneficiaries is a minor, would you want them to receive their inheritance at 18? Most people prefer to divvy up distributions over time, e.g., a beneficiary gets 1/3 of his or her inheritance at age 25, 1/3 at age 30, and the rest at age 35.
Irresponsible beneficiaries. Are any of your beneficiaries financially irresponsible? If you are concerned that a beneficiary might squander his inheritance, you can distribute a set amount of money per year to help make it last longer.
Education incentives. Do you want to encourage a beneficiary graduate from college? You can provide that a beneficiary only receives his or her inheritance upon obtaining some sort of degree or certificate. You can even state that the beneficiary must maintain a certain GPA.
Substance abuse. Do you have any beneficiaries who suffer from substance abuse or other addictions? Many people provide that the trustee can require drug testing before a beneficiary is entitled to receive his inheritance. Or you can allow your trustee to manage the beneficiary’s inheritance and pay it out for the benefit of the beneficiary (e.g., for rent, car repairs, medical bills) as needed.
Special needs. If a beneficiary has special needs and is eligible for certain public benefits, receiving an inheritance could disqualify her from those benefits. A properly designed trust can ensure that the beneficiary’s inheritance is held for her benefit while still allowing her to receive public benefits.

Options like these are worth exploring even if you have responsible adult beneficiaries.

Because what if one or more of those beneficiaries pass away before you?

You can always amend your living trust at a later date, if younger beneficiaries grow into responsible and capable adults.

If there is any scenario in which you would want to control or condition a beneficiary’s inheritance, then you should consider a living trust… because a Will won’t do the job.

4. A trust can secure tax benefits.

I have seen a lot of people try to do their own estate planning, and it often turns out poorly.

One of the most common mistakes I see is also one of the most costly. In trying to avoid probate without the assistance of an attorney, some people end up leaving their beneficiaries with a huge tax bill by mistake.

Consider this scenario:

John is 85 and was recently diagnosed with a terminal illness. His most valuable asset is his house, which he bought 40 years ago for $35,000 — though it’s now worth over $135,000.

Because he does not want his son, Sam, to have to pay for probate, John deeds his house to Sam. John dies a week later.

Sam will not have to go through probate to get his father’s house, which seems like a good thing.

But it’s actually not.

Because John deeded Sam the house during his lifetime, Sam received John’s $35,000 cost basis in the property. This is called a “carryover basis,” since John’s basis was “carried over” to Sam. If Sam sold the house now, he would need to pay income taxes on the $100,000+ capital gain.

In other words, Sam could be looking at a $20,000+ tax bill.

Ouch.

And that could have been avoided by taking advantage of “stepped-up basis.”

You see, if John had let Sam inherit the house after his death instead of deeding it to Sam during his life, John’s $35,000 cost basis would not have been carried over to Sam.

Instead, Sam’s new basis would be “stepped up” to the value of the house on the date of John’s death.

John’s house was worth $135,000 at his death. Therefore, Sam’s new cost basis would be $135,000. If he then sold the house for $135,000, he would pay $0 in capital gains taxes on that sale.

By trying to save Sam the expense of probate, John ultimately cost him thousands in taxes.

Related post: What is Stepped-Up Basis?

The good news is that you don’t have to choose between probate or taxes.

A fully funded living trust gives you the best of both worlds: your loved ones don’t have to go through probate, but they still get to take advantage of the stepped-up basis “loophole.”

5. Simplifying estate administration.

As I mentioned earlier, probate can take a while.

Even with a relatively “simple” estate, it is often more than a year before the beneficiaries can receive their inheritance. (I put simple in quotes because, in my experience, there is no such thing as a simple estate.)

It is not uncommon to see probates last closer to two years, depending on the circumstances.

Part of this is because almost everything in a probate must first be approved by the court.

For example, selling a house during probate can sometimes take nearly two months.

Depending on the case, the executor may first have to apply for the authority simply to sign a contract to sell the house. This requires filing a petition and waiting (usually) 3-4 weeks for a hearing.

And that’s just for permission to sign the contract.

After the contract is signed, the court then has to approve the sale. This involves publishing notice of the sale and filing another petition and then waiting another 3-4 weeks for another hearing.

And guess what? At that final hearing to approve the sale, someone else can swoop in and outbid the person who contracted to buy the house from the estate.

Related post: What is Probate?

A living trust can bypass that process.

You can use a trust to give your trustee the authority to dispose of your real estate according to your wishes. The trustee could sell it as soon as possible, if that’s what you want.

Or if you want the house to go to a specific beneficiary, the trustee can sign a deed instead.

No court approval necessary.

A trust simplifies dozens of other aspects of estate planning, making it much easiest than probate by far, regardless of what kind of assets you leave behind.

6. Planning for your incapacity.

If only I had a nickel for every time I’ve heard someone say, “I don’t need an estate plan because I don’t have any assets to pass along”…

Many people think estate planning is just something that matters after their death.

But what happens if you become incapacitated?

What happens if you are no longer able to manage your assets or finances?

In the midst of the current Coronavirus/COVID-19 pandemic, these questions are more relevant now than ever before. Every estate plan should address the possibility that you might someday be incapacitated.

A living trust is not limited to stating how your estate should be distributed after your death.

It can — and, in my opinion, should — also include provisions for how your estate should be administered in the event you become incapacitated.

You can name a person you trust (called, coincidentally enough, your trustee) to manage your assets for your benefit, paying bills, negotiating debts, etc.

Depending on the case, that might be enough to avoid the need for a guardianship.

Another great document for this type of situation is a Durable Power of Attorney, which allows you to appoint someone to make any or all financial and/or health care decisions for you.

Keep in mind, however, that a power of attorney covers different assets than a trust does.

An Attorney-in-Fact under a Durable Power of Attorney can manage only assets that are titled in the name of the individual on whose behalf he or she is acting.

On the other hand, the trustee of a trust can manage only assets that are titled in the name of the trust.

This is a subtle, but crucial, distinction.

Related post: What is a Power of Attorney?

Even though they deal with similar subject matter, combining a living trust with a Durable Power of Attorney can help ensure that someone will be able to manage your assets or finances regardless of whether they need to act on behalf of you or your trust.

7. Protecting your privacy.

Probate cases are a matter of public record.

That means anyone can access documents and information filed in a probate case.

Because every probate requires a listing of assets and debts — and, depending on the case, information about your business dealings and/or family relationships — that means your life could be put on display for anyone to see.

A nosy neighbor or an estranged family member will be able to read your Last Will and Testament, see what assets you have, and possibly even know if you faced any legal issues at the time of your death.

But a living trust avoids all of that.

Because a trust does not need to be filed with the court, your estate information can be kept private.

Even while you are still living, a trust can provide an extra layer of privacy, as it can be listed in public land records as owning real estate instead of you.

8. The State won’t decide who gets your assets.

This is one of the primary benefits of estate planning in general.

If you die without an estate plan, the laws of your state (called intestacy laws) will decide what happens to your “stuff.” You won’t get any say in the matter.

That could mean your assets will go to someone you don’t want to have them, or that your estate will be controlled by someone you don’t trust.

It’s even possible that your assets could end up going to the government.

But you can change that outcome with an estate plan. A living trust is just one option.

Using a living trust, you can alter this default distribution order and ensure that your estate will go to the people you want to have it.

Ensure your legacy with a Living Trust.

While a living trust is an amazing estate planning tool, it is not a unicorn that can solve every problem. And because there is no one “best” estate planning option, be sure to have an attorney assess whether a trust is the optimal solution for you.

For more information about creating or updating your living trust, or to discuss what other estate planning options might be best for you, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.

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David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.

You can email David through our Contact Us page or by calling our office at (405) 691-5080.

[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]