Do You Need a Living Trust? For Most Working Families, Not Yet

A revocable living trust is a real and useful tool. It is also one of the most oversold products in estate planning. For most working households, the honest answer is that a will-centered plan does what they need, and a trust can come later if life gets more complicated.

What a living trust is

You move ownership of your things into a trust while you are alive. Usually you are the trustee and the beneficiary, so day to day nothing changes: you still live in the house and spend from the accounts. You can change or cancel the trust at any time. When you die or can no longer manage, a successor trustee you named takes over and hands things out the way the trust says, generally without a court.

What it can do:

• Skip probate for whatever has been moved into the trust.
• Manage things if you become ill, without a court guardianship.
• Keep matters private, since a trust doesn’t become a public court file the way a probated will does.
• Control timing, for example releasing money to a child in stages at 25 and 30.

What people aren’t told

It only works if you fund it. Every asset has to be retitled into the trust’s name: the deed, the bank accounts, the investment accounts. This is the step most often skipped, by clients and sometimes by lawyers. As one legal scholar put it, people “very rarely transfer all of their property into their revocable trust.” An unfunded trust gives a false sense of security.

It doesn’t protect you from creditors or taxes. What is in a revocable trust still counts as yours for both.

It costs more, now. A trust costs more to set up than a will, and the work of retitling is real. You pay those costs while you are alive; the savings mostly arrive after you die.

You still need the other documents. Even with a fully funded trust you need a “pour-over” will (to catch anything left outside the trust and to name a guardian for children), a financial power of attorney, a health care proxy and current beneficiary forms.

When a trust is a good choice

• A blended family, where you want to provide for a spouse for life and still make sure your own children inherit in the end. That balance is hard to strike with a will alone.
• Young children and a home, where you want a trustee to manage money for them until they are older.
• An older homeowner raising a grandchild, with a higher chance of illness, a house that would go through probate, and a child who depends on them.
• Property in more than one state, which can otherwise mean a probate case in each.

Most of those are also signs to talk with a lawyer, and they’re situations we’d talk through with you in person.

When it isn’t

• A renter with modest savings and no dependents. There is little for probate to touch. A will and the health and money documents are the right start.
• A homeowner whose only big asset is the house, in a state that allows a transfer-on-death deed, which can keep the house out of probate at a fraction of the cost. Connecticut currently doesn’t, so here a trust, or how the deed is held, matters more. See transfer-on-death deeds.
• Anyone unlikely to retitle their assets. If the funding won’t happen, the trust won’t work.

The bottom line

Start with the core: a will, a financial power of attorney, a health care proxy and living will, and beneficiary forms that match your wishes. That covers most households well. If your family or property grows more complicated, a trust is a step you can add with a lawyer.

Sources: B. E. S. Fogel, “Trust Me: Estate Planning with Revocable Trusts,” Saint Louis University Law Journal (2013); Hachfeld, Bau & Holcomb, Estate Planning Principles, University of Minnesota Extension (2013); Dalsted & Sharp, Key Elements of an Estate Plan; New York Real Property Law § 424 (transfer-on-death deeds).

This article provides general educational information and is not legal advice. Consult a licensed attorney for guidance specific to your situation.