What Are The Pros and Cons Of a Living Trust
A trust is a legal mechanism by which one person (the settlor) gives money or property to a trustee, who manages it and eventually distributes it to its intended recipient or recipients (the beneficiaries). A testamentary trust is a trust that is established in a will and comes into effect when the settlor dies. A living trust, also known as an inter vivos trust, can be set up anytime during the settlor's life.
There are many different types of living trust and each type may have its own specific pros and cons. Our wills and estates lawyers can help you to explore the pros and cons of a living trust and determine what type of trust might benefit you in your estate planning.
The Benefits Of A Living Trust
Both testamentary trusts and living trusts are most commonly used as estate planning tools and can have tax deferral benefits for the settlor. Some other common benefits of a trust include:
- assets can be protected from legal battles or creditors of the beneficiary
- the settlor can maintain more control over what is done with an asset after they have passed it on than they would if they transferred it by way of a will or by simply giving the asset to the beneficiary
- the beneficiaries may save money on probate and executor fees after the death of the settlor.
Living trusts are often set up with a very specific purpose in mind. For example, parents or grandparents might establish a trust for an adult child with a disability, which might enable the child to continue receiving benefits from the Assured Income for the Severely Handicapped program, or other government benefits.
Disadvantages Of A Living Trust
There are costs involved with establishing a living trust. Trusts are more complicated to prepare than wills and generally require the help of a lawyer. It is also necessary to transfer the assets to the trust. Depending on the number and type of assets involved, this might be quite expensive.
A living trust also has ongoing costs to ensure compliance with laws. For example, the trustee will need to file a trust tax return annually on behalf of the trust. The trust will also usually pay the trustee for ongoing services involved in managing the trust.
The assets in a living trust are not readily accessible to the beneficiaries. While this might be seen as an advantage to the settlor, it can also cause inconvenience and difficulties for the beneficiaries. For example, it may be significantly more difficult for a beneficiary to obtain a loan using trust assets as collateral. When things become more difficult, they also become more expensive, especially if they require a significant time investment from the trustee or if the beneficiary needs to hire a lawyer.
Speak To Our Legal Team Today
Our Alberta wills and estates lawyers can explain to you in detail what are the pros and cons of a living trust and focus on the pros and cons of a particular living trust in your particular circumstances. Give us a call today to find out what you need to know about this potentially helpful estate planning tool.
*Disclaimer: Please note the advice contained in this article is not intended to act as legal advice and instead intended to act as a general overview on a legal topic. For specific legal advice please consult with a lawyer.