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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 alive.
  • 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 and property.

    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 to them.

    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 estate."
    "Act now."
    "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; 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;

    Council of Better Business Bureaus, Inc., 4200 Wilson Blvd., Suite 800, Arlington, VA 22203-1838; 703-276-0100;

    The National Academy of Elder Law Attorneys, Inc., 1604 North Country Club Rd., Tucson, AZ 85716; 520-881-4005;

    The National Consumer Law Center, Inc., 18 Tremont St., Ste. 400, Boston, MA 02108-2336; 617-523-8010;

    American Association of Retired Persons; Federal Trade Commission
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