OCEAN CITY – When most investors hear the term “living trust,” they often think of something only celebrities and the ultrawealthy use to shelter their assets from public view. The truth is, anyone who has reason to keep some things about their net worth confidential, even from relatives, might consider this vehicle as part of the estate planning process. Assets held within a living trust bypass probate court, removing them — and how you distribute them — from public view. The ability to retain control of the trust’s assets during your lifetime, and to add and remove assets at will, also make the living trust a flexible way to manage your estate. There are many other pluses as well.
As the name implies, living trusts hold significant advantages while you are still alive. One of the main advantages is flexibility. Living trusts are revocable, meaning that you can change the provisions and the trustees whenever and as often as you like. And, unlike some other planning instruments, living trusts allow you the freedom to use the assets at any time.
Another significant advantage of having a living trust is the amount of control it gives you, even in the event that you become incapacitated. The time may come when you are unable to manage your own affairs due to illness or injury. The trustee (or trustees) you assign to manage your assets in a living trust are bound by law as a fiduciary (someone who manages the assets of another for their sole benefit) to closely follow the directions you lay out in the trust. They must, in other words, always act in your best interest.
“You’ve given specific instructions as to what they’re empowered to do,” said David Dodson, Southeast Division Director of the Wealth Structuring Group at Merrill Lynch.
And because the choices are yours, there’s less likelihood of disputes among family members as to whether your wishes are being carried out.
A living trust has many advantages after death as well. All its provisions and contents, including nonpublic property such as business holdings and portfolios, will remain out of the public eye by avoiding probate court. Unlike wills, which must be settled in probate court and therefore are a matter of public record, living trusts (also known as inter vivos trusts) are private documents, Dodson says. As assets from your trust pass to your heirs according to your specifications, nobody needs to know except those directly involved.
However, even if you have set up a living trust, you should still have a will, Dodson cautions. Not all your assets will be included in the living trust, and a will is intended to help ensure that your entire financial life is distributed based on your estate plan. You may wish to create a pour-over will, which essentially transfers all your remaining assets into the trust at the time of your death.
One disadvantage of some trusts is the administrative burden: Trusts require regular oversight and maintenance. While many people choose to retain direct control over their assets by naming themselves the trustee, another option is to select one or more individuals to serve as trustee(s). Even if you do name yourself trustee, you’ll still need to designate someone to succeed you as trustee should you become unable to serve in that function yourself.
Choosing the right person or entity is crucial. Make sure the person you choose understands the responsibilities involved with carrying out potentially complex instructions. One option is to name a loved one as a co-trustee along with a professional trustee.
It’s also vital to have a solid team of professionals advising you as you establish and maintain the trust. Your financial advisor can discuss living trusts with you and can introduce you to a trust specialist, as well as give you recommendations for attorneys and accountants, if you don’t already have them.
(A Merrill Lynch Senior Financial Advisor who can be reached at 410-213-8520.)