Alternatives to Making a Living Trust

Other estate planning tools provide many of the same benefits as living trusts. In fact, if your only goal is to distribute your property, avoid probate, or plan for incapacity, you might not need a living trust.

Other Property Distribution Options

If your only concern is to decide who gets your property when you die, then you have other choices besides a living trust.

Wills

Wills are powerful estate planning tools that are relatively simple and inexpensive to make. It's no wonder that they are probably also the most well-known and commonly used estate planning tools for property distribution.

While both wills and trusts work well to distribute property. The key difference between a living trust and a will (and the reason that most people make a living trust) is that trust property does not go through probate (while property left by will does). But there are other differences as well:

Comparing trusts vs. wills:

• Trusts take more work to make because you have to transfer property into it.
• Trusts cost more because they are more complex.
• Trusts (unlike wills) can include a plan for property management in case you become incapacitated.
• Trusts provide more privacy than wills, because they do not become part of the public record like wills do.

If you have relatively simple wishes for your property, are not worried about probate, and have another plan for incapacity (like a durable power of attorney), a will might be sufficient to distribute your property

In reality, however, the choice isn't usually "will or trust," it's usually "will or will and trust" because most people who make a living trust also make a backup will.

Intestate Succession

If you have very little property and typical wishes, intestate succession might sufficiently distribute your property, saving you the time and expense of making a will or trust.

Intestate succession is the default system established by state laws to distribute the property of people who die without a will or a trust. Intestate succession is not exactly a plan, but it will distribute your property. And for some people, it might be enough.

Each state has its own rules, but in all states, who gets your property under intestate succession depends on who your closest relatives are. If the probate court cannot find any relative, your property will go to the state government (or get tossed, depending on its value), but this rarely happens.

If you're okay with how the state will distribute your property, are not worried about probate, and you don't want any other benefit of making a will or trust, then you can reasonably rely on intestate succession to distribute your property. (Before making that decision, however, make sure you know and are comfortable with the succession scheme in your state.)

Other Ways to Avoid Probate

If your primary reason for making a trust is to avoid probate, you might be able to do that in other ways. You can reduce the burden of dealing with probate in many other ways.

Here are some other ways to keep your property out of probate:

Beneficiary designations. Almost all financial accounts can transfer without probate if you designate a beneficiary with the institution that holds the account. For example, as part of the process of opening a savings account, you might be able to name a person to get the account when you die.

You can likely have beneficiary designations for your:

• bank accounts (checking, savings, CDs)
• retirement accounts (IRA, 401k, 403b, pensions)
• investments accounts (stocks, bonds, T-bills), and
• life insurance.

If you've named a beneficiary for your account, the institution can transfer that account directly to your beneficiaries without any court involvement. There is no limit to the amount of money or number of accounts you can transfer this way.

One downside to using beneficiary designations is that you need a straightforward beneficiary plan, because the institutions will limit the number of beneficiaries and alternates you can name. And you won't be able to add any personal provisions, so if you want the funds to be distributed over time or under specific conditions, you'll need to use a trust instead.

Transfer on death deeds. Many people want to make a living trust solely to keep their house (perhaps their most valuable asset) out of probate. But they might be able to use a transfer on death (TOD) deed instead.

TOD deeds are not like typical deeds that indicate ownership of a property. Instead, they are a revocable document in which you state who will own the house when you die. You must record the deed with your county land records office. When you die, the beneficiary can use the deed to transfer the property to themselves without probate.

Like beneficiary designations, TOD deeds don't work well for complex beneficiary situations. But if your situation is straightforward, a TOD deed could save your family thousands of dollars in probate costs.

Transfer on death deeds are available in Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

Transfer on death registrations for automobiles. Some states also allow you to name beneficiaries for your car as part of the registration process. If you do, the car will transfer directly to your beneficiaries without probate. Go to the website for your state's department of motor vehicles to see if you can name a beneficiary there.

Transfer on death registrations are available in Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Indiana, Kansas, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, Oklahoma, Texas, Vermont, and Virginia .

Property with rights of survivorship. When you co-own property with the right of survivorship, your share of the property will transfer directly to the other owner(s) when you die, without probate. There are pros and cons to owning property this way. Ask a lawyer for help in deciding whether owning with the right of survivorship is a good option for your situation.

Simplified probate. Most states have ways to minimize the costs and duration of probate in some specific situations. For example, surviving spouses might be able to use a simplified process to claim their deceased spouse's property. And small estates (those with low value) might be able to skip the most time-consuming and expensive aspects of probate.

Incapacity Planning

If you're thinking about making a living trust primarily to ensure that someone will have the authority to take care of your property and assets if you become unable to manage your own affairs, you might consider whether a durable power of attorney is a better tool for the job.

The biggest downside to using a living trust as a plan for incapacity is that your successor trustee will have authority only over the property you've transferred into your trust. Many types of property do not belong in your living trust, so it would be very unusual for a living trust alone to be a sufficient plan for incapacity.

To give someone authority over property not included in your living trust, you need a durable power of attorney. A power of attorney can give another person (your agent) total or very precise power to act on your behalf if you're unable to manage your affairs. Making a durable power of attorney is the most important thing you can do to prepare for incapacity, and nearly every adult should have one.

In some situations, you might want both a living trust and a durable power of attorney in your plan for incapacity—for example, if you have multiple properties and do not want the same person to manage each one. For instance, say you co-own a condo with your sister. You can put your share of the condo in a living trust to make sure that your sister will have control over it if you become incapacitated. Then you can use a durable power of attorney to give your spouse authority over your other financial matters. But use caution when you give authority over property in two separate documents—do everything you can to avoid confusion or contradiction. So if your living trust gives your sister authority over your condo, don't give your spouse authority over all of your real estate in your power of attorney. Either make sure the power of attorney does not cover the trust property, or take extreme care to ensure the powers you provide in each document don't conflict. An attorney can help you get this right.

Finally, keep in mind that this section addresses powers over property and financial matters, not health care. To give power over your health care or to provide instructions about what kind of care you want, you'll need to make a health care directive that includes a medical power of attorney or a living will, or both.

Deciding Not to Make a Living Trust

In summary, you may not need to go through the expense and hassle of making a living trust if you use other estate planning tools to distribute property, avoid probate, and plan for incapacity. If you're not sure whether making a living trust is right for you, discuss your options with an experienced estate planning attorney.