The Pros and Cons of a Living Trust
Awareness of living trusts has increased in recent years, and many seniors
are under the impression that everybody should have one. This is NOT the case
at all. For many individuals, a will can take care of your estate as effectively
as a living trust.
In some ways, a living trust functions in the same way as a will, because
it allows you to decide what will happen to your estate-your home, your money
and any other property-after you die. But the biggest difference between a
will and a trust is that the trust can carry out your wishes while you're
still alive. That's why a trust may be a good choice for people who are fairly
sure they will be unable to care for themselves or make sound decisions in
their later years.
How a living trust works
A trust is a legal arrangement. One person gives control of his or her property
to the trust. The person giving property to the trust is called the "grantor."
The grantor then decides who will administer the property in the trust. The
administrator is called the "trustee." The trustee is responsible
for making sure that the property is handled in the way the grantor decided.
The trustee can be the same person as the grantor. It could also be a different
person, or it could be an institution. If you-the grantor-are also the trustee,
you have to name someone to distribute the assets of the estate after your
death. That person is called a "successor trustee."
There are two primary advantages to a living trust: You make the decisions about what happens to your estate while you are still
A living trust that is well executed avoids probate after your death. Probate
is a legal process that involves filing a deceased's will, taking inventory
of the property, paying all legal debts and distributing the remaining assets
The disadvantages of a trust are that it costs money to set one up, and in
the end, it may not carry out your wishes exactly in the way you had hoped,
especially if the person who set it up for you was not experienced and highly
capable. In many cases, people are able to accomplish the same goals without
a living trust if they take advantage of the other estate planning tools available
Additionally, you may become ineligible for Medicaid if you create a trust
that designates you or your spouse as the trustee. The government assumes
that the assets in your trust are available for nursing home care if you have
set up this kind of trust within five years of applying for Medicaid.
Additional planning tools for seniors
In addition to a living trust, there are other ways that seniors can plan
for the future of their estates:
Medical power of attorney: designates an individual who can make decisions
for a person who is incapacitated
Directive to Physicians and Family or Surrogates (also called an Advance
Directive): If your condition is terminal, this directive can carry out your
wishes in terms of whether you want treatment than can prolong your life or
whether you do not want such treatment
Durable power of attorney: gives another individual the power to make decisions
about you, your property and your finances
Living will: expresses your interests about being kept alive if you're terminally
ill or seriously injured
Be careful of scams
There are scammers out there who may put pressure on you to set up a living
trust. They may try to convince you that everyone should have a trust. They
may say that if you don't have a trust, all of the money in your estate will
be taken by taxes. The truth is that almost all but the very wealthy can create
wills that protect their estates from undue taxation.
Be wary if you hear the following phrases from someone who's trying to convince
that you need a living trust:
"You need a living trust so that there won't be high death taxes on your
"Don't miss this opportunity."
In addition, avoid people who tell you that AARP is endorsing or selling
their product. AARP does not endorse any living trust product.
Talk with an estate planning attorney
Since every estate is unique, and since estate planning is handled differently
by the different states, the only way you can be sure you're protecting your
estate to the best of your ability is to talk with an experienced estate planning
attorney. These individuals will know the ins and outs of your state laws
and your particular situation.
You may also want to check out the following resources:
AARP: 1-800-424-3410; www.aarp.org. Ask
for a copy of Product Report: Wills & Living Trusts. AARP does not sell
or endorse living trust products.
The American Bar Association, Service Center, 541 N. Fairbanks Ct.,
Chicago, IL. 60611; 312-988-5522; www.abanet.org/publiced/publicpubs.html
Council of Better Business Bureaus, Inc., 4200 Wilson Blvd., Suite
800, Arlington, VA 22203-1838; 703-276-0100; www.bbb.org
The National Academy of Elder Law Attorneys, Inc., 1604 North Country
Club Rd., Tucson, AZ 85716; 520-881-4005; www.naela.org
The National Consumer Law Center, Inc., 18 Tremont St., Ste. 400, Boston,
MA 02108-2336; 617-523-8010; www.consumerlaw.org
American Association of Retired Persons; Federal Trade Commission