There are a number of different types of trusts used in estate planning and they serve a number of different purposes.  There are testamentary trusts and inter vivos trusts.  Testamentary trusts are written so that they come into being at the death of the creator.  Inter vivos trusts are created during a person’s life.  There are also revocable and irrevocable trusts.  Revocable trusts are inter vivos trusts that can be rescinded or changed during the creator’s lifetime.  Irrevocable trusts can be either inter vivos or testamentary and are most often used for tax planning purposes.  They cannot be rescinded during the person’s life and can only be changed in certain circumstances.  

Revocable trusts are often called Living Trusts.  They are most often used to avoid the issues associated with probate.  In a number of states, probate is a difficult and costly process and a Living Trust can be used to transfer the property to a Trustee during the person’s life to avoid the probate at their death.  I also recommend such trusts to people who have property in more than one state.  Without such a trust, the beneficiaries would have to probate the will in the state or commonwealth where the person lives when they pass on, as well as in any other state or commonwealth where they own probatable assets (car, boat, real property or anything with a title). 

Another reason why a Living Trust might be a recommended option is that it can be more difficult to contest than a will.  If there is potential for serious disagreement among the beneficiaries, a Living Trust may be preferred.  Also a will must be submitted to probate which is a public process and part of the public record.  A Living Trust is not part of the public record so potential beneficiaries and interested parties cannot find it recorded among the public records, which makes a Living Trust a more private document.

A Living Trust can be an effective management tool in planning for incapacity due to age or illness.  A Living Trust continues to be in effect during the physical and/or mental incapacity of the maker of the trust.  The Living Trust generally names an alternate Trustee of the Trust if the creator of the trust cannot or will not assume Trustee responsibilities.  Therefore, this alternate Trustee can manage the affairs of the trust maker without court supervision.  Without a Living Trust, the court must appoint a guardian, or a Durable General Power of Attorney must be in effect in order for someone to manage the affairs of the trust maker if he or she is incapable of doing so.  

There are some draw-backs to using Living Trusts to manage an estate.  For instance, assets must actually be transferred into the trust in order to pass to the trusts beneficiaries upon the death of the trust maker.  In some cases, the trust maker may not feel comfortable transferring the title of all assets to Trust.  There is the illusion of the loss of control, for instance, the deed to a house would be transferred “to the Trust of ________” and would no longer be in the name of the trust maker.  

Trust assets are actually held and administered by a Trustee who is appointed by the trust creator.  There is the possibility of abuse of assets by the Trustee.  Although, the Trustee would be held accountable for embezzlement, this could result in court costs and attorneys’ fees.

A trust creator may “just not get around” to transferring all of the assets to the Trust, leaving a number of assets outside of the trust.  Even if a Living Trust is executed, a will must still be created.  A will can take these assets that are outside the Trust and “pour” them into the Trust upon the death of the trust maker.  The assets would then be distributed as directed in the Trust.

Living Trusts are usually more expensive to prepare than a will, and also include administrative costs and possibly trustees fees.

In conclusion, Living Trusts have a number of benefits and are an extremely important part of the estate planning process, but they may not suit everyone or every estate planning situation.  The best way to determine if a Living Trust is appropriate is to consult with a knowledgeable attorney.