A living trust can be a useful and practical tool for some people. For others, it can be a waste of time and money. Before succumbing to an enticing sales pitch, the Better Business Bureau suggests that you become familiar with estate planning terms and choose a strategy that best suits your particular situation. Probate is a legal process that usually involves filing a deceased person's will with the local probate court, taking inventory and getting appraisals of the deceased's property, paying all legal debts and eventually distributing the remaining assets and property. Probates can be costly and time-consuming.
A trust is a legal arrangement where one person gives control of his/her property to a trust, which is administered by a "trustee" for the "beneficiary's" benefit.
A living trust, created while you're alive, lets you control the distribution of your estate. You transfer ownership of your property and your assets into the trust. If a living trust is properly drafted and executed, it can avoid probate.
A will is a legal document that dictates how to distribute your property after your death. If you don't have a will, the law of your state determines what happens to your estate and your minor children. The probate court governs this process.
Before you sign any papers to create a will, a living trust, or any other kind of trust, the Federal Trade Commission and BBB suggest that you:
- Explore your options with an experienced and licensed estate planning attorney or financial advisor.
- Avoid high-pressure sales tactics by anyone promoting estate planning tools or arrangements.
- If you opt for a living trust, make sure it's properly funded (i.e., the property has been transferred from your name to the trust). Otherwise, the trust will be invalid and the state determines who inherits your property and serves as guardian for your children.
- If someone tries to sell you a living trust, ask about their expertise. Some states limit the sale of living trust services to attorneys.
- Remember the Cooling Off Rule. If you buy a living trust at a location other than the seller's permanent place of business (such as in your home), you have the right to cancel the deal within three business days.
- Check out the organization with your BBB (www.bbb.org) before you send any money.
To learn more about estate planning strategies, check with the FTC (www.ftc.gov) and the AARP (www.aarp.org).